Retirement Planning: Bonus is part of the variables for many employees.

While they get it every year, they have a vague idea of how to spend it.

Many times, it is spent on tangible things that don’t make any significant change in a person’s life or add value to their lifestyle.

But if they use that money wisely, with investing just 10 years of office bonus, they may create a retirement corpus that can take care of their retirement needs.

If one invests Rs 1,00,000 in the 1st year and steps up the amount by 10 per cent every year, they may create a over Rs 2.77 crore corpus! Know how!

What is retirement corpus?

It is an amount that can take care of an individual’s future needs.

Why is retirement corpus necessary?

Expenses of a person don’t stop in their retirement phase.

However, their income may stop.

If they don’t have income sources or a monthly pension, they need an income plan from where they can fund their retirement.

A retirement corpus may come handy in such a situation.

It provides financial freedom for a person in their retirement stage.

How much should be one’s retirement corpus?

The retirement corpus should fund the entire retirement phase.

One thing to keep in mind is that even if your lifestyle is the same post retirement, your expenses will rise due to inflation.

So, the retirement fund should not dry up.

How can one prepare retirement corpus?

One can make investments that suit their income cycle.

They may choose daily, weekly, monthly, quarterly, half-yearly, or yearly investment cycle.

If they get a lump sum amount through an office bonus, share in property, or other means, they can top up their investment with that amount.

What investments can one make for retirement corpus?

They can choose market-linked and non-market-linked investment schemes for retirement planning.

While fixed rate investments will give their corpus a slow and steady growth, market-linked investments will help grow their corpus faster in the long run.

The selection of both can be done on the basis of the number of years to retirement and post-tax returns.

What we will calculate

We will have a 2-phase calculation. In the first phase, we will show how one can create a corpus by investing Rs 100,000 office bonus with a 10 per cent annual step up for 10 years.

In the second phase, we will show how large corpus it may create if we let this amount grow without making any fresh investment for 20 years. 

In this way, if one starts investing at 30, they may create an over Rs 2.76 crore corpus by the time they reach 60. In both stages, our annualised return will be 12 per cent.

Step up SIP

We will start with Rs 1,00,000 yearly SIP investment and increase the amount by 10 per cent every year. So, for 10 years, our investments will be- 

Year 1- Rs 1,00,000
Year 2- Rs 1,10,000
Year 3- Rs 1,21,000
Year 4- Rs 1,33,100
Year 5- Rs 1,46,410
Year 6- Rs 1,61,051
Year 7- Rs 1,77,156
Year 8- Rs 1,94,872
Year 9- Rs 2,14,359
Year 10- Rs 2,35,795

How much corpus it my create in 10 years

In 10 years, the total investment will be Rs 15,93,742, estimated capital gains at 12 per cent annualised return will be Rs 12,74,050, and the estimated corpus will be Rs 28,67,792.

What you need to do

From this stage, you can stop investing and let the income grow for 20 years.

How much corpus it may create

At a 12 per cent annualised return, a Rs 28,67,792 investment will give estimated capital gains of Rs 2,47,95,770, and an estimated corpus of Rs 2,76,63,562.

Power of compounding 

The power of compounding plays a key role in growing your corpus.

It helps you get returns on returns.

So, the longer your investment duration is, the faster your corpus can grow.

That’s the reason how the Rs 28,67,792 corpus grows to Rs 2,76,63,562 without making any fresh investment.

Let’s see how much it may grow with 5 more years of investment.

If one lets it grow for another 5 years, the estimated corpus will grow to Rs 4,87,52,649.