Whether you’re starting to invest for retirement or are reviewing your retirement plan, it is important that you calculate the rate of return correctly. While you may be offered high rates of return, it is important to not take this at face value. Do your own calculations to understand what rate of return will help you cater to your needs comfortably.
When doing this exercise, consider the following factors to arrive at the ideal rate of return.
Never consider the rate of return of any investment in isolation. Especially when you are planning for retirement, you must factor in the impact inflation will have on your money in due course of time. For example, if an investment option is offering you an interest rate of 6%, but the current rate of inflation is around 5%, then your gain is marginal. Instead of taking the advertised rate of return at face value, do the math to see if it will suffice 10–20 years from now, once you retire.
Like inflation, taxation affects your portfolio too. Whether it is fixed deposits or mutual funds, you will have to pay tax in some measure. So, consider your tax liability before committing to an investment with the view of raising funds for retirement. This will give you a true picture of what you will earn versus what you will pay in the form of taxes.
- Additional fees and charges:
A sound wealth retirement portfolio contains a healthy mix of different options. To achieve capital appreciation and preservation, it is important to diversify. While taxation and inflation have a bearing on all asset classes, certain financial instruments carry additional costs. For example, when you invest in mutual funds, besides paying tax, you also have to foot fees such as a securities transaction tax. Although these fees may appear insignificant, over the years they will compound. So, make note of these charges when evaluating rate of return.
When you invest in a FD from Bajaj Finance, for example, you will have to pay no hidden charges. You can enjoy a high rate of interest and excellent flexibility with this investment option.
Age matters too
Besides these three factors that can eat into your actual returns, you must also pay attention to how long you have until you retire. In an ideal scenario, you must start investing for retirement as soon as possible. But, it may so happen that you start planning for retirement in your 40s or 50s. So, depending on how much time you have until retirement, you must look at the rate of return accordingly.
If you start in your 20s, you can invest aggressively to accumulate wealth, or if you want to play it safe, you can depend on a moderate rate of interest to get the job done over a long tenor. But, if you start in your 40s, you will have to rely more heavily on the rate of return to help you achieve your targets.
Paying attention to these 4 factors will help you arrive at a rate of return that will help you finance your retirement comfortably. For more details visit our page for Senior Citizen Fixed Deposit.