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Retirement Investment Strategies for Early Career Professionals

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Getting your first job and kicking off your career is no doubt one of life’s great milestones. It’s so easy to get caught up in new responsibilities in a new environment, the thought of life after work hardly ever crosses the mind. In the beginning, your income might not be very high so the notion of saving for retirement may not be your top priority, and you might even assume that it’s beyond your reach. This is a normal thought process, but it’s quite important to think about starting your Retirement Investment journey as soon as possible. Setting aside funds for your retirement early in your career can feel like a bit of a burden, but think of it as a payment to yourself in the future. Your future self will receive this money with interest. A lot of interest.

In this blog, we will tell you the importance of starting early and load you up with some Retirement Investment Tips so your future self will thank you for starting early.

The Power of Starting Early

When you’re young, you’ve got two allies by your side. The first is time. You have to start investing as early as you can because by doing so you’re also giving your money more time to grow. If you and your friend start investing the same amount of money, in the same assets with you in your twenties and your friend in their thirties, of course by retirement you will have amassed more wealth than your friend. Another advantage you get with time is that it allows you to take higher risks to pursue higher returns. In case you lose some money in the stock market, you will have time to bounce back and recoup those losses. An older person is usually not granted this comfort.

Albert Einstein had this to say about your second ally – compound interest:

“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” 

It’s really important to understand the power of compound interest. Simply put, it’s when your money earns interest on both the initial amount and the interest it has already earned. In the beginning, the returns might seem not that significant but be assured of the snowball effect of compound interest. With its help, as time passes you will be able to build an enormous retirement fund.

Setting Clear Retirement Goals

Start thinking about what kind of retirement you want. Do you want to live in a different city, or maybe a different country?  Are there any hobbies you want to pursue? Do you want to travel the world? What do you want to leave behind for your children? Do you simply want to live a peaceful life without any financial stress? There are many questions that you can ask yourself and set clear goals. Doing so is important because you have to know how much you need to save to live the life you desire.

After you know your goals it’s a good idea to create a budget. Know your expenses and see if there are any that you can cut. Delicate a portion of your income to savings. Your goals and your budget will help you in retirement planning and give you a crystal-clear vision of how to achieve your retirement dreams.

Types of Retirement Accounts

In India, there are many Retirement Investment options you can look into. These accounts such as the EPF, PPF, and the NPS are especially designed to help people save for their post-retirement years. Let us briefly take a look at them:

1.Employees’ Provident Fund: If you’re a salaried professional, you probably already have an EPF account. In this scheme, both employees and employers contribute a portion of the employee’s salary towards the fund. It’s safe, reliable, and an overall solid option for retirement planning.

2.Public Provident Fund: PPF is a very good option if you’re looking for long-term investments. It has a lock-in period of 15 years and can be extended in blocks of 5 years. The interest earned on PPF is tax-free, so it’s a good account if you’re looking for tax benefits. 

3.National Pension System: NPS is another great option if you’re looking for tax-saving retirement funds. It was launched by the Government of India and offers a choice of investment options, such as equities, corporate bonds, government securities etc. It will allow you to accumulate a retirement corpus and receive a pension after retirement

Minimizing Risk Through Diversification

The next tip involves risk management, and you can do that through diversification. Simply, diversification is just like that old saying, ‘Don’t put all your eggs in one basket’. Your portfolio should have a mix of different assets such as equities, bonds, real estate, gold, and more. It’s also vital to achieve the right balance of these assets and that will come from your risk tolerance and goals. By spreading your investments you reduce the risk of being overly invested in a single asset class. If you invest in a startup and it fails to take off, your diversified portfolio can lessen the impact of that loss and help you bounce back. Usually, early career professionals can take more risks as they have time on their side, but it’s not a rule. You should make sure you are comfortable with the level of risks you’re taking.

Tax-Saving Strategies

To keep more of your hard-earned money you have to do some tax planning. To get started you should know which investment options provide tax benefits. In India, there are several. Some of the most common ones we have already touched upon above are the EPF, PPF, and NPS. Under section 80C of the Income Tax Act, many exemptions, deductions, and benefits are listed for these accounts.

  • Contributions to EPF are tax-deductible under Section 80C.
  • The contributions and interest earned on a PPF account are tax-exempt under Section 80C.
  • Contributions made to the NPS receive a tax benefit of up to Rs. 1.5 lakhs under Section 80CCD.

You can reduce your tax liabilities in other ways too

  • Equity-Linked Savings Scheme mutual funds offer tax benefits under Section 80C. They also provide an opportunity to invest in equities
  • Under Section 80D, you can also get tax deductions on health insurance premiums, which are up to Rs. 25,000 a year
  • Many banks offer tax-saver fixed deposits with a lock-in period, which can be claimed as deductions under Section 80C.

Investment Strategies

It is crucial to choose the right investment strategies for yourself. You might want to dip your toes into the stock market with equities, which can offer impressive long-term returns, or invest in real estate through REITs, as it is a proven asset. You could be tempted by mutual funds that promise high returns or maybe want to invest in fixed deposits that can provide guaranteed returns and that peace of mind we all appreciate. Stocks, bonds, gold, and SIPs there are so many avenues where you can invest and this is why investment planning is very important, especially for people just starting.

A good investment plan takes your specific situation into account. It revolves around your goals and risk tolerance and your unique asset allocation. Keep reviewing your portfolio and make adjustments as you need, and your plan will surely help you build a substantial nest egg.

Professional Guidance

It’s possible to manage planning for your retirement on your own, but still seeking the help of a Financial Advisor can be beneficial. For people still in the early stages of their career it can be a bit overwhelming to plan for their investments. Consulting with an Investment Advisor can help because the advice they offer is very customised. Their insights are a result of careful assessment of their client’s specific financial situation, risk tolerance, and long-term goals.

A professional can also help you save tax, figure out the right asset allocation for your portfolio, and adjust it through market fluctuations. 

Conclusion

If you’re a professional who’s just starting, congratulations! By knowing what you need to do to secure your future, you’ve already taken the first step in your long retirement journey. Starting early gives you peace of mind and erases worries of an uncertain future. So take the next steps today and start investing to ensure your golden years are truly golden.