Retirement planning is done by many people, but only a few people are able to take real advantage of it. One rule of retirement planning is that it should be started as soon as possible. When people get their first job, people think that they will do retirement planning after a few years and this is the biggest mistake. Actually, you should start planning for retirement at the time of first job. This is because the more time your investment gets to grow, the more it will grow thanks to the power of compounding. Let us understand what is Power of Compounding and why retirement planning is necessary from the first job itself.
Why Do Retirement Planning From First Job?
If you start planning for retirement right from your first job, you will have a long time to invest. Suppose you get a job at the age of 25, then you have 35 years till the age of 60 i.e. you retire. In this way, interest will continue to be earned on your first investment for 35 years. If you start investing after 5-10 years, then you will get interest only for 25-30 years on the investment of the same amount. Planning from the first job will be very beneficial even if you think of an amount for your retirement and raise money accordingly. In such a situation, you will have to deposit very less money every month. As you delay, you will have to deposit more money.
Know The Power Of Compounding
Compounding here means compounding interest, which is also called compound interest. Under this, you also get interest on the interest of your investment. Suppose you deposited Rs 1 lakh in the first year, on which you got 10% interest i.e. Rs 10,000. Now next year you will get 10% interest on the entire Rs 1.10 lakh. Similarly, along with interest, your amount will go on increasing and interest will continue to accrue on it.
Understand With An Example
If you save Rs 1,000 every month, then in 10 years you will get Rs 1.20 lakh. Now if you get 7% annual interest on this money at the rate of simple interest, then your money will become Rs 1,28,400 including interest. On the other hand, if you get compounding interest on this money, then after 10 years at the rate of 7%, Rs 1.74 lakh will be deposited with you. This will happen because you will also get interest on the interest of every year.
What To Do If You Need Rs 1.5 Crore On Retirement?
Let us assume that at the time of retirement you will get at least 4-5% return on your savings. In such a situation, if you need 50-60 thousand rupees every month, then at the age of 60 you will need a retirement corpus of about 1.5 crore rupees.
Invest Rs 7500 Every Month
If you are 30 years old now, you will have to invest Rs 7500 every month to accumulate Rs 1.5 crore by the age of 60, which earns 10% interest. You can get 10% interest by investing in NPS. If your age is more than 30 years, then accordingly increase your investment done every month, so that you can get more money till retirement.
