When you are in your twenties you hardly give a thought about a future retirement plan, let alone think of an early one. This is primarily where one can go wrong.
We often laugh at the possibility of a comfortable retirement and have accepted that one needs to work every day possible, sometimes even taking up two jobs for a "civilized" lifestyle for yourself and your family. Although the young generation has a sense of responsibility and oozing talent in them, they are too often drawn to consumerism.
You may not be very clear on your career path yet, but you have to accept that you will get older and unlike the generations gone by, you may not be able to dependant on your children or rather you may not want to.
To remain as independent as you are now even in your old age, it is best to start thinking about your retirement early.
Why should you plan early for a retirement?
Considering inflation, you will give or take need Rs 5 crore to live a comfortable life including healthcare and living expenses. Suppose you start saving for it when you are 40, you will need to deposit rough Rs 25 lakhs per year for 20 years to reach that goal.
If you start by the age of 25, it can be reduced to Rs 14 lakhs per year, but need not start with 14 lakhs, you can distribute the concentration of this amount over the years.
When you are in your twenties, you will have a lesser liability towards your family, which means you can shell out more of your salary towards your retirement. You can invest in more risky investments like equity mutual funds.
How to start saving early for your retirement?
Start a monthly recurring kind of investment solely for your retirement. You can choose from PPF or mutual funds of your choice. However, pick a percentage to deposit rather than a fixed sum. For example, if you discipline yourself to transfer 5 percent of your salary every month to such an investment, over time your share will increase as your salary does.
Another important thing is to not gamble your money in something that will not give you a guaranteed return. Save investments like PPF is a good idea as they also come with tax benefits. Additionally, know when you move your corpus to higher yielding instruments. For example, after 15 years (PPF tenure) you can move the accumulation to a high interest paying fixed deposit or a government tax saving bond.
However, do not fixate on the tax saving element, rather diversify your funds in investments, such that even a tax payment will get covered by the earned returns.
Avoid lifestyle spends
In a society that needs an instant validation of one's success, you may feel tempted to spend on gadgets, rent and eating out.
All of these are temporary spends that will do you no good in the long run.
As you grow older, you may be able to withstand peer pressure to spend but you will have other responsibilities like child education, home loans, parents medical care, etc. which why it is wise to start early.
Additionally, if you able to save well enough by the time you are 50, you can surely think of an early retirement and go on holidays.