Plan for your child’s future without digging in to your retirement fund

There are many among us who want to withdraw from the rat race and the mad rush of our daily lives, and retreat into a peaceful and happy retired life. But dreaming of an early retirement is the easiest part, the reality kicks in when you start planning not only for your comfortable life after retirement, but also make sure you have a steady stream of income post retirement. On the surface, this might look like a tall order, but effective planning can actually make it come true. Here’s how to go about it.

Invest early and regularly

Those wanting to retire early can’t get around this requirement. The first step would be to establish the amount needed for various life goals such as retirement, children’s higher education, wedding etc and then invest systematically for those needs, for which you could consider Mutual Funds.

The essential difference between the approaches of early retirement seekers is that they can allocate their funds for the priority goals then – such as children’s education and alongside start building a retirement corpus. After all, multitasking isn’t just a superhero term! The good news here is that by investing with mutual funds, you can plan like a superhero without actually being one. Having SIPs for different life goals but channelizing those SIPs, depending on the priority, could help you be financially ready for each goal.

Rein in expenses

“No gain without pain” one wag had once put. This is quite true when you are pursuing two varied goals – your child’s needs and that of retirement. While you don’t need to live like a hermit to retire early, every “penny saved is penny earned”, and that penny can grow for your cherished goals.

For instance, even if you manage to save Rs 500 per month, you could end up saving over Rs 4 lakh in 20 years considering your money grows at 12% annually in an equity mutual fund*. But you need to analyse and channel your expenses so that you could save more. The more you save, the better your contribution can be.

Keep increasing your savings

While your priority goals can take the front seat, you could slowly and gradually keep increasing your retirement contribution. For instance, if you manage to invest Rs 1.2 lakh annually in equity Mutual Funds for the next 20 years, assuming an annual return of 12%, you could save up to Rs 98 lakh. But suppose you increase your savings by, say, 8% each year starting with Rs 1.2 lakh in the first year, you could save up to Rs 1.67 crore*!

As and when your savings increase, you could consider channelizing it for your retirement as well as your child’s future needs.

Do not ignore equity investments

Early retirement definitely does not mean lesser money, but it surely means that what otherwise could have been a longer growth period, is now comparatively short. The implication of this is that you will need to make your money work that much more to ensure that you don’t fall short on any front. In this backdrop, most of the investment roads related to children’s and retirement needs lead to equity investments through equity funds.

For equities, past performance is no indicator of future outcomes. As you near your goal, you could gradually start shifting your money from equity funds to lower-risk debt fund investments.

This comes to show that you can achieve the herculean task of investing for your retirement and children’s needs, without being a superhero.

This article solely provides general information on financial planning and is not for solicitation of investments by L&T Investment Management Limited and/or L&T Mutual Fund. The information in this article should not be construed as providing investment advice and does not seek to address specific investment objectives, financial situations and particular needs of any specific person who may receive this information. The recipient of this article, therefore, should rely on his/her investigations and obtain professional advice (legal, tax and financial) before taking any investment decision, and should understand that statements made herein regarding future prospects may not be realised.

*Calculations in this article are based on assumed rates of return on investment and actual return on your investments could be more or less. Expenses, if any, have not been factored into the calculations and they could reduce the returns on investments. Calculations shown here do not in any manner imply or suggest performance of any scheme of L&T Mutual Fund.

Investments in mutual funds and secondary markets involve inherent risks. There can be no guarantee against gain or loss that would result from following any suggested asset allocation nor can there be any assurance that an objective will be achieved. Past performance may or may not be sustained in future.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. CL02261

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