Things to Know When Planning for Your Retirement in your 30s

Padmaja Choudhury   /   May 24, 2022
financial planning in your 30s

Start investing a minimum of 10% of your investment towards retirement.

Most of you in your 30s might not relate to the article’s title on the view that there is still significant time for retirement. For most of you, there would be other priorities, such as may be buying a house, car, or vacationing at your desired location. That is why financial planning in your 30s is very Important imperative for individuals to plan for their retirement right at the outset when they start earning for two reasons, increasing life span means you have to fend for yourself over a long period in retirement, two the social support structure of the joint family system is disintegrating due to urbanisation and nuclearisation of families.

This article looks at how you can carry out financial planning in your 30s to have a comfortable retired life.

Prioritise retirement

While you might have many other goals in mind, especially since this is also the time when you are more settled in your life in terms of income, but you might also have other commitments such as married life and young kids, you must prioritise retirement planning. This gives you a headstart to pension planning and can also help you garner a larger corpus.

Buy a health insurance

Now you would think, why to include health insurance in retirement planning. The reasons are twofold, having a health insurance policy reduces your cash flows in case of medical emergencies, also restricting you from dipping into your retirement kitty to fund the contingency. Second, having a continuous health insurance policy will also do good while buying a similar policy during your retirement.

Have an emergency corpus

This reason is similar to buying a health insurance plan. By having a corpus for exigencies such as loss of income, etc, you stop yourself from dipping into your retirement savings. An emergency fund makes you prepared to face emergencies. Ideally, the amount of money in an emergency corpus will depend on your financial obligations, occupation, and monthly expenses. In your 30s, you can have an emergency fund with at least six months of expenses.

Start investing at the earliest to get the benefit of compounding

Compounding is generally termed the eighth wonder of the world. And time is an important factor that affects the power of compounding. Especially when used in investments, compounding is a very powerful aspect as it earns interest on the interest. So, the power of compounding gets amplified when the money stays invested for a long time. Compounding is important in financial planning in your 30s

Invest in long term asset classes

Another important thing for retirement planning is to invest in long-term asset classes such as equity to derive the best returns from your investment. Investing in equities also ensures that your money is giving returns that beat inflation. The 15-year rolling return of S&P BSE Sensex is around 15% since its inception in 1979; compare this with the current low rate of return from a traditional debt instrument like fixed deposits.

Further, investing in equities over the long term also maps well your retirement horizon, which could be 30 years considering 60 years of retirement.

Investing directly in equity could, however, be cumbersome and expensive for individual investors. Instead, they can invest through professionally managed routes like mutual funds. Equity mutual funds invest in stocks of companies. There are different types of equity mutual funds, such as large cap funds and mid cap funds that invest in large and medium-sized companies. So, the risk associated with an equity mutual fund will differ from other equity mutual funds. You can invest in an equity fund that suits your risk profile as an investor.

Make systematic investments –  Financial planning in your 30s

Investing towards your retirement corpus needs to take place at regular intervals. Thanks to the Systematic Investment Plan(SIP) facility, you can invest a predetermined amount at regular intervals in a mutual fund of your choice. It is an automatic process, so you don’t have to bother making a new investment request every month. It is especially useful for salaried individuals who get a fixed amount every month. Investing in SIP makes you a disciplined investor and helps you benefit from the power of compounding.

Make systematic investments -  Financial planning in your 30s

If you ask what is the best investment strategy for a 35-year-old in India, we would say investing in mutual funds through SIPs and increasing the SIP amount at regular intervals.

Earmark a small percentage of investment towards retirement

You will have many financial goals, but that doesn’t mean that you can ignore investing for your retirement.

How much to invest at 30 for retirement is not an easy question as the answer will vary widely among individuals. You can invest a small percentage if you believe that you can’t invest a significant portion towards your retirement kitty. Start investing atleast 10% of your entire investment corpus for retirement. You can increase the percentage as per your comfort level. We suggest that you invest as much as possible for your retirement when you have lesser financial obligations. Your financial obligations will increase with time as you have to look after your family and plan for your kid’s higher education.

Conclusion:  

Saving for your retirement early in your life will help you think through tax-friendly investment options and give you more time to get a good return on your investment.

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