Retirement Planning: When someone enters their retirement phase, their income sources may deplete or vanish.
But their expenses will stay there.
They may remain the same, decrease, or increase, but retirees need some amount for their daily needs.
In such a situation, a sizeable retirement corpus is necessary.
But where may it come from?
It may come from the investment you make during your working years.
Step by step, brick by brick, one can keep investing to create a sizeable retirement corpus.
But why is a retirement corpus necessary?
How one may build a retirement corpus; what kind of investments they may choose; and how they can create a Rs 1.5 crore retirement corpus from a Rs 5 lakh one-time investment.
See details-
What is retirement corpus?
A retirement corpus is an amount that helps you live your retirement life with financial freedom. A corpus should be large enough you can live your life without depending on anyone.
How large retirement corpus should be?
You need to calculate the retirement corpus amount based on when you want to retire and for how long you want to live the retirement life.
If you are 35, want to retire at 60, and need corpus till the age of 85, you have 25 years to invest and need corpus for as many as years.
To know the retirement amount, you need to know what your monthly/yearly expenses will be at the retirement age (you may calculate it through inflation).
The expenditure will rise by the rate of inflation.
How can you create retirement corpus?
One may pick fixed interest and market-linked investment options to create a retirement corpus. While fixed income options can provide stability to your corpus, market-linked options will provide growth in the long term.
Post-tax investment returns
Taxation rules keep changing.
So, it is very important to stay updated about the latest rules and keep revising your strategy.
The ultimate goal should be to achieve the retirement corpus within the time frame.
Benefits of starting to invest early
The early starter gets more years for compounding of their investment.
So, the one who starts early can achieve the retirement corpus target with a smaller amount compared to a late starter. It is because an early starter gets more years for compounding.
Example of early investment
Suppose there are A and B.
A starts their retirement investment journey at 25 years of age, and B starts at 35.
Both want to create a Rs 5 crore retirement corpus by 60 years of age.
Both pick monthly SIP investment as the mode and expect a 12 per cent annualised return on their investment.
A invests for 35 years and reaches the Rs 5 crore retirement corpus target with an estimated monthly SIP amount of Rs 7,700 and an estimated overall amount of Rs 32,34,000.
B invests for 25 years and reaches the Rs 5 crore retirement corpus target with an estimated monthly SIP amount of Rs 26,350 and an estimated overall amount of Rs 79,05,000.
How to create Rs 1.5 crore corpus with Rs 5 lakh one-time investment
If one deposits a lump sum amount of Rs 5 lakh and gets a 12 per cent annualised return on their investment, they can achieve the target in an estimated 30 years. Let’s see the breakup of this investment in 10, 20, and 30 years.
Corpus from Rs 5 lakh one-time investment in 10 years
In 10 years, estimated capital gains will be Rs 10,52,924, and the estimated retirement corpus will be Rs 15,52,924.
Corpus from Rs 5 lakh one-time investment in 20 years
In 20 years, estimated capital gains will be Rs 43,23,147 and the estimated corpus will be Rs 48,23,147.
Corpus from Rs 5 lakh one-time investment in 30 years
In 30 years, estimated capital gains will be Rs 1,44,79,961, and the estimated corpus will be Rs 1,49,79,961.
As you can see that the corpus is growing faster in every 10 years. It is because of the compound growth of SIP investment.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
