All through the working years, individuals wish that they have the time to do a lot of things like travel, cultivate a hobby, etc. Picture this- when you retire, you have the time on your side but fall short on the resources. It is not a nice situation to be in when you get into the stage of retirement without adequate preparation. In the current social structure, not saving up for retirement can end up being a big mistake.
Ideally, savings for retirement should start with your employment. But there are instances when that is not possible due to various reasons. Have you been wondering how it would work if you want start planning for your retirement much later? It is good to learn how much you should save in different stages of life to have a comfortable retirement.
If you are in your 20s
The proverb "Slow and steady wins the race" holds good here. You have a long time for preparation, so it gets easier. A small amount of money set aside will help you build a good retirement kitty. The ideal time to start off your preparation for retirement is as soon as you are employed. Though this is the stage when you are tempted to spend on eating out, travel and other lifestyle expenses, a little focus on creating a retirement fund will go a long way. Experts suggest setting aside a small sum of 5% per month towards your retirement fund. The period during which you remain invested is more important than the amount that you invest. The power of compounding is an amazing tool which is available if you regularly invest. So, set aside an amount that is suitable to you and choose the right instrument for investing depending on your risk profile.
If you are in your 30-40s
When you are in your 30s, you have some years of earnings behind you. This is also the stage when you have increasing responsibilities but have somewhat settled down in your career. This stage also represents a jump in your earnings. So, you should be able to put more in your retirement fund. Expenses towards EMIs and other discretionary expenses might be taking up a bigger chunk of your salary, but that should not let you deter from you saving up for your retirement. More so, it is required if you have not yet started planning for your retirement. The figure that you should save up for retirement at this stage in your life should be around 10-20% of your income with additional focus on life and health insurance too. If you have started earlier in your 20s, maintain continuity in your investments.
You should not forget that it becomes increasingly difficult to be able to buy a health insurance policy as you approach retirement. If you do not have a policy, this stage of your life is ideal to buy a policy at lower amount of premium.
In your 40-50s
This phase of your life might be when you are at the peak of career. At the same time, there might added expenses towards other responsibilities like planning for children's education, closing your loans, etc. If you have not thought about a retirement plan yet, it might be too late for it. But, it is always good that you can start off at some point rather than not starting off at all. If you are just starting your retirement planning, make a list of your goals and take a decision on which goals are inevitable. Then you can direct your savings and investments towards those goals. If you are starting off your retirement savings in your 40s, then a higher figure of 20-40% of your income might be needed to be put aside.
Additional Reading: 5 Retirement Planning Mistakes to Avoid
For those who have been consistent in retirement savings, it is a good time to take stock of your investments and set the direction for future. There might have been a change in your circumstances which might need you to rethink about the amount that you require for retirement. For Example: Decrease in your income as you launched a startup of your own, spouse stopped working due to family commitments, you decided to go in for a vacation, home, etc. If you have been consistent, you might have more leverage to adapt to change in circumstances. Whatever be the situation, a total stop in savings is not recommended. If you can put aside a slightly bigger amount than your 30s, that would be good; however, under no circumstances should you stop saving.
In your 50s
You are not very far away from your retirement years. At this stage of life, you should start moving your investments for retirement into less riskier assets. For Example: If you have been saving through equities, it might be a good time to move it into debt instruments. Also, you should have ideally freed yourself of mandatory expenses like EMIs for various assets. If you like to start your second innings of career after retirement, this is the time to think about the options and get a fair idea on what could be your income. This income could be of great support during your retirement years.
Also, of late, there is a trend of early retirement. So, there may be many individuals who are looking to retire in early 50s too. If this is your plan, then you should have started planning to move your funds to safer avenues in your late 40s. As you have a longer period of life ahead of you, do have a plan in hand on how the retirement kitty that you created will support you.
Retirement is a difficult phase in life. Do not let it catch you unaware. It is good to be prepared well in advance. Also use the power of compounding to build up a fund that will ensure you can remain comfortable through your retirement.