The earlier you start investing, the better your retirement corpus will be. This is a simple thumb rule that most people do not follow all their lives. What you should take into consideration is that average life expectancy is fast going up and post retirement years may be a source of anxiety without proper planning and financial reserves. As a result, the basic rule is to keep 10% of your salary allocated for retirement planning from the moment you start earning.
Investments are recommended in financial instruments where there is frequent compounding and the risk profile should be gradually tweaked to scale up overall returns. Allocation of assets will be majorly dependent on the risk level that you can comfortably manage and also your age. This also depends on aspects like the number of dependents and in case you wish to deploy money into debt linked instruments, a bigger portion of the income will have to be invested for compensating for the lower returns.
Take into account your current monthly expenditure. Assume rates of inflation at 6% approximately and increase them accordingly for the number of years you have till retirement. This will help you work out the sum of money you will require every month post retirement. Work out the amount you need to save to build a corpus that will help you get this monthly income post retirement. Asset allocation should be flexibly switched with age. Young investors should opt for an equity heavy portfolio while investors who are aggressive can deploy up to 30% of their portfolio of funds in small-cap and mid-cap funds since these are considered riskier.
In the 30s, one should be aggressively investing in equity as per experts and conservative investments should be around 40% of the portfolio. In the 40s, there should be a healthy balance of both equity and debt. Conservative investors can select 10-20% added debt allocation. In your 50s, move your investment from volatile equity investments to safer debt related instruments. You can invest in a combination of channels like bank FDs, post office MIS, senior citizens savings scheme and immediate annuity schemes.
After retirement, steadily switch to debt investments from equity investments. You can always deploy money in balanced funds which have exposure up to 65% across equities.