As millennials begin to think more seriously about their future, one of the key financial questions that arises is, “How much should I save for retirement?” While retirement might seem far off, starting to save early can make a huge difference due to the power of compounding. In this blog, we’ll break down how much millennials should aim to save for retirement and key strategies to help them achieve this goal.
1. Start Early: The Power of Compounding
One of the most important financial principles for millennials is the power of compounding. The earlier you start saving, the more time your money has to grow. Even small contributions to your retirement savings can grow significantly over time due to compound interest.
- For example, if you start saving ₹5,000 per month at age 25 with an annual return of 8%, by the time you retire at 60, you could accumulate nearly ₹1.5 crores.
- Starting at 35 with the same amount would result in just around ₹65 lakhs, showing how important time is in building your retirement corpus.
For millennials in their 30s, it’s crucial to start planning now. Read our detailed guide on Financial Planning for 30-Year-Olds in India to get a better understanding of how to plan effectively.
2. How Much Should You Aim to Save?
There is no one-size-fits-all answer to how much millennials should save for retirement, as it depends on factors like lifestyle expectations, inflation, and life expectancy. However, a good rule of thumb is the 50-30-20 rule:
- 50% for needs like housing, utilities, and food.
- 30% for wants such as dining out, entertainment, and travel.
- 20% for savings and investments, including retirement.
Many financial planners recommend saving 15% to 20% of your income exclusively for retirement. The earlier you start, the smaller this percentage can be. For instance, if you begin saving for retirement in your 20s, you can potentially save 10% of your income, while starting in your 30s may require closer to 15%-20% to meet your retirement goals.
3. Understand Your Retirement Needs
When planning for retirement, it’s important to think about how much you’ll need to maintain your desired lifestyle in the future. Most experts suggest that you’ll need around 70%-80% of your pre-retirement income to live comfortably.
- Calculate your estimated living expenses during retirement, including housing, healthcare, and daily expenses.
- Consider inflation. Over the years, the cost of living will rise, and your retirement savings need to account for that.
If you’re unsure where to begin with financial planning, check out our blog on Financial Planning for Millennials, which offers insights into managing your money effectively in your 20s and 30s.
4. Maximize Tax-Advantaged Retirement Accounts
To help build your retirement savings, take full advantage of tax-advantaged accounts like the Public Provident Fund (PPF) or National Pension Scheme (NPS). These options offer tax benefits under Section 80C of the Income Tax Act, which can help you save more efficiently.
- PPF offers guaranteed returns and is ideal for conservative investors.
- NPS offers market-linked returns and the flexibility to invest in a mix of equity, debt, and government securities.
These accounts help millennials grow their retirement corpus while also offering significant tax advantages.
5. Balance Your Investment Portfolio
A balanced investment portfolio is essential for building retirement savings. Since millennials have time on their side, they can afford to invest more aggressively in equities, which have the potential for higher returns over the long term.
- Equity mutual funds: Suitable for long-term wealth creation.
- Debt instruments: Offer stability and can be used to balance your portfolio as you near retirement.
As you age, gradually shifting more of your investments into safer, low-risk assets like bonds or fixed deposits can help protect your wealth.
Retirement Savings Milestones
| Age | Savings Goal |
| By Age 30 | Save 2x your annual income |
| By Age 40 | Save 5x your annual income |
| By Age 50 | Save 12x your annual income |
| By Age 60 | Save 15-18x your annual income (retirement) |
Conclusion
Saving for retirement may seem overwhelming, but starting early and planning strategically can ensure that you build a comfortable nest egg. Millennials should aim to save 15%-20% of their income for retirement, take advantage of tax-saving opportunities, and maintain a balanced investment portfolio. Starting in your 20s or 30s gives you a major advantage thanks to compounding.
If you’re in your 30s and haven’t yet started saving, it’s not too late! Check out our guide on Financial Planning for 30-Year-Olds in India to get back on track. For millennials looking to plan smarter, our article on Financial Planning for Millennials offers detailed strategies to help you secure your financial future.
With the right approach, retirement savings don’t have to be daunting. The earlier you start, the better prepared you’ll be to enjoy a comfortable and stress-free retirement.
