Incomes have been rising for quite a while, and with it, so have our retirement plans and expectations. With multiple schemes and pension plans in place, we no longer need to be dependent on a third party to continue our ongoing lifestyle post-retirement. This is not something that happens overnight, or even within a matter of a few years. Saving up for retirement is something that is best started in your early years and often requires careful planning.

#1 Know that it is never too early

The first step towards successfully saving towards retirement is knowing that you must save. Saving in your 20s may not be a priority - retirement is almost 4 decades away and you have just started earning. However, your youth is a colossal advantage when it comes to saving for retirement. Since the interest on your money is compounded, it maximises savings and returns huge benefits over the long term.

Your initial years are a relatively stress-free period to start saving. There are no mortgages to pay off or a large family to support, hence, with a proper planning, these are the years to save the maximum amount. As the years progress, you will not have to contribute as much as you did in your earlier years, and yet, you can either retire early or might retire rich.

#2 Invest a fixed amount for your retirement

Once you have acknowledged that you need to save money for retirement, it is important to set aside a fixed amount to invest/save every year. An optimum amount is between 11% to 17% of your income. One-fifth of your salary is a safe amount to save without living in a thrifty manner. Setting aside a fixed amount of your income for retirement ensures that you reach your retirement objectives while simultaneously enjoying your income for current purposes. This will also help you cut down on any unnecessary expenditure and save for any future unforeseen hit. A good place to start investing in is the Reliance Mutual Funds. They are well diversified across themes and sectors, and hence the risk involved is reduced. The Reliance Mutual Funds also have mutual funds especially created for major break-points in life, such as your child’s education and retirement. They have tailored mutual funds that help you build a corpus fund for retired life.

#3 Use pension plans

Pension plans are the simplest way to start saving for retirement. A pension plan is essentially a financial coverage provided to you during your old age via insurance plans. This is a constructive way of saving for your future - you have professional assistance to save and grow a certain amount of money every month. There are two types of pension plans you can look into - defined benefit plans and defined contribution plans. A defined benefit plan is handled completely by the employer. They accumulate the money over your working years so that you can retire stress-free. A contribution plan, on the other hand, is a set-up where the individual themselves contribute to a retirement plan by shelling out a certain amount every month. Defined contributions keep the risk on the shoulders of the employee. If the returns on the savings-investments are weak, the employee might have to work a little longer or forego a rosy retirement.

#4 Use your public provident fund (PPF)

American sitcoms and pop-culture have made the 401k very popular. However, not many of us are aware of what it is, who is it applicable to and how to use it. The 401k is specific to residents of the United States of America and is a tax-qualified, retirement savings account. However, the word has become popular enough for all countries to believe they are entitled to one as well. In India, the 401k is substituted by a Public Provident Fund (PPF). This is different from a National Pension Scheme (NPS) which is a pension plan. For beginners, the PPF is a benefit not extended to NRIs. The Public Provident Fund has very fixed returns with no added frills and does not depend on the market situation. In addition to this, it is also tax-free. The scheme lasts for about 15 years as a lower bound and can be increased for 5 years at a time.

#5 Plan for inflation

It is important to note that there will be at least 35 years between the day you start earning and the day you retire. Your salary and income will increase over the years. However, you should still be prepared for retirement. You can do this by investing in commodities whose value will rise with time (or inflation). One good (and common) investment plan to beat inflation is investing in mutual funds. Mutual funds have historically delivered consistently high returns, especially over the long term. They are also taxed at a lower rate of 10% if you hold them for more than a year. Real estate tends to rise along with inflation, and hence owning your own house is also something you could consider. Renting it out is even more beneficial since rents tend to increase alongside inflation.

Given the correct kind of planning and investment, you could retire early, retire rich, or live a comfortable lifestyle. The key is to start now!