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25 November 2020 | 5 min read

How Much Money One Should Save For Early Retirement

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With the young generation going in the workforce and some already there, the general attitude that is attributed to them is being of reckless and living life of on impulses. The fact that consumerism is rampant today and everything that can be purchased is purchased in this capitalistic world doesn’t sit well with the idea of savings and retirement planning.

Of course, exceptions are always there, but if you related to the above conception somewhat, you might want to reconsider your financial priorities and add a retirement savings plan to your agenda.

That is if you do want something saved for early retirement or else it is completely fine to wing it. Not suggested by financial experts but no judgement here.

For those of you who do plan to retire early, a lot of your monthly saving towards a retirement corpus will vary depending on your income, needs, dependents and the target you are eyeing for your retirement savings. We will give you a starting point and a short guide to help you navigate these waters.

The Corpus You Need To Build For Retirement

Retirement Corpus – Live More Zone

When it comes to the question of “how much to save for retirement”, there is no one-size-fits-all approach. The average Indian workforce starts working at the age of 25, and people usually retire by the age of 60-70. This was the case with boomers, but millennials and the coming generation is likely to retire by 40-50 and either chill-out, travel the world or start something of their own.

Thus, the question of your corpus target will depend on what you plan to do with your money for retirement. Whether you plan to laze it out and indulge in your hobbies or painting, reading, or travelling or still wish to work, albeit a little, will be determining factors. The former will require a big saving for retirement corpus.

Jot down your priorities, wishes and a roadmap of how your life should look like after retirement and start your planning from there.

Your contribution to retirement fund should grow gradually

Retirement Fund – Live More Zone

Once you have sat down and decided on your whims, desires, and priorities after retirement, you will have a ballpark figure you would need to save. Generally, factoring inflation at 10%, if you want to live the life you are currently living, you will need to save at least 5-10% of your income every month till you retire to make a decent corpus that will keep you afloat in your later years.

Of course, once you do retire and assuming you live in your own home, expenditure like monthly rent, EMIs and taxation on your income will be void. Thus, keeping a target of 10 – 20% is a good idea to enjoy retirement benefits without worrying.

However, when you are starting and settling in your first job, 10% may seem a huge stretch if you have other financial obligations. Thus, experts recommend, trying to put anywhere between 5-10% initially to your retirement fund.

And as you grow in your career and life, you can increase the contribution to your retirement fund to 10-20% in your early 30s. When you are nearing retirement, you can save as much as you want if your kids have gone to college and you have made the final payments on your loans and other debts. Ideally, this should be 20-30% of your income that goes to your retirement needs account. If you can do more than this, you have become a master at both managing and saving money.

How To Go About Saving Money?

Now you know your retirement target, how much to save at different stages of life but the essential and the most fundamental question remains – how to save money for retirement? In this section, we give you brief pointers on the same.

1.Start Early, From Your First Job

Start saving early – Live More Zone

This is an understatement but needed to be hammered in every young professionals’ brain. Start saving from your first job. With retirement decades away, this might seem like the last thing you want to do, but even if you save just 5% from your first job at the age of 22-25, you will be ahead of your peers. And your money will have enough years to beat volatile market conditions and earn you good interest.

2.Make Savings Your Priority

Planning and having an eye out for something that will reap benefits way down the line can seem like a task, but savings should be your priority. Not just retirement corpus but segregating your income for different funds you have and different goals you will set is paramount in ensuring you don’t dip in your retirement pool.

3.Spend Within Your Means

Spend within limits – Live More Zone

Budgeting and being smart about your money are the only way to save enough that you can put away in your retirement fund like Mutual Funds, RD, SIP or other investment vehicles.

4.Donot Accumulate Unwanted Debt

Most people vouch for that shiny credit card on their first job instead of opening a savings account. I have been there, and it took me to double the time to pay all my credit card dues back. If you are starting, ignore the allure of credit cards, and you will be spared of unwanted debt.

5.Have A Strong And Diverse Portfolio

Strong portfolio – Live More Zone

Last but not least, have a strong and diverse portfolio that includes both debt and equity funds. The latter is high-risk but gives you huge returns, and the former is for people who want to play it safe. Make sure your Mutual Funds are 70-30 in a ratio of equity-debt if you are starting early. digibank by DBS has a myriad of options when it comes to Mutual Funds and setting up one with them is easy and hassle-free.

Make sure you start with your investments and savings early when it comes to your retirement because the last thing you want to lament in your later years is not saving enough and being dependent on other people.

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