Rules for Successful Retirement Planning – Start Early
Note
Exam Relevance: Focus on the "Cost of Delay" concept. You may be asked to illustrate why starting early is beneficial with an example.
Rule 1: Start Early (The Power of Time)
The biggest asset in retirement planning is not money, but Time.
The Cost of Delay Example
Two friends want to retire with ₹5 Crores at Age 60.
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Conclusion: Delaying by 20 years increased the required effort by 12 times!
Rule 2: Asset Allocation (Use Equity)
Retirement is a long-term goal. You cannot fund it with Fixed Deposits (FD) or PPF alone because they barely beat inflation.
- Logic: If Inflation is 6% and FD gives 7%, your real growth is 1%.
- Equity: Over 15-20 years, Equity (Sensex/Nifty) has historically given 12-15% returns.
- Strategy:
- Young (20s-30s): High Equity (80%).
- Middle (40s-50s): Balanced (60% Equity).
- Retiree (60+): Low Equity (20-30% for growth, rest Debt for safety).
Rule 3: Don't Dip into the Corpus
The biggest mistake people make is withdrawing from their PF/Retirement fund for other goals (Marriage, Home, Car).
- Impact: Withdrawing ₹5 Lakhs at age 30 destroys ₹1.5 Crores of potential corpus at age 60 (due to compounding).
- Discipline: Lock your retirement funds away.
Rule 4: Increase Contribution with Income
If you start with ₹5000/month, don't stay there.
- Step-up SIP: Every year, as your salary increases by 10%, increase your investment by 10%.
- Result: This small habit doubles your final corpus.
Summary (Exam Points)
- Start Immediately: Even small amounts count.
- Beat Inflation: Use Equity Mutual Funds for long-term growth.
- Lock-in: Never touch retirement savings for short-term luxury.
- Step-up: Increase savings annually.
Quiz Time! 🎯
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Next Chapter: The Process of Retirement Planning! 📝