Retirement Planning by One-time Investment: How Rs 3,75,000 one-time deposit can generate fund worth Rs 1,26,00,000

Retirement Planning by One-time Investment: You may want to retire in 10 years, 20 years, or 30 years.

Based on the investment time frame, your strategy to create a retirement corpus will change.

The second factor will be your age.

If you have started your career and you want to prepare for retirement from then on, you can be aggressive in your strategy, but if you are in your 40s, you need to be conservative.

Risk appetite with time may decrease.

But if one wants to create a large retirement corpus, they may not need to invest a huge sum; they may create the same with a small one-time investment.

However, in that case, they need to begin their investment journey early in their career.

Know the necessity of a retirement corpus, the reason why one should begin it early, how the power of compounding may increase their corpus faster with time, and how a one-time (lump sum) investment of Rs 3,75,000 can generate a corpus of Rs 1,26,00,000.

Is retirement corpus necessity for all?

It depends on the source of earnings at the time of one's retirement.

One may have a monthly pension or income, such as rental income, at the time of their retirement.

If either of them is sufficient to run their expenses, they may not require a separate corpus.

But if it is not, a retirement corpus is a must.

Secondly, inflation will be an important factor for your retirement years.

So, whatever income source you have should give you a higher amount every year.

If it is not increasing, you may need a retirement corpus alongside it.

Size of retirement corpus

This depends on when you want to retire, your expenses at retirement, and for how long you expect to live.

E.g., if you want the corpus for 20 years or 30 years, the difference between both amounts will be vast; the reason is that the expenses will increase due to inflation.

How we can calculate our retirement corpus 

The basic thumb rule is that you need to calculate the corpus of the first year of your retirement.

Considering that as your first-year expenses, you can calculate the present value of the corpus you require for the rest of your life.

When you are calculating this corpus, post-retirement return from your investment and inflation will be factored in.

How to know investment required for that

Once you have calculated the corpus, you can discount that at the rate of pre-retirement investment return.

It will give you the one-time investment required to create the retirement corpus.

If you want to calculate the yearly or monthly SIP amount, you can calculate it through the payment calculation method from an SIP calculator.

Why early investment matters

An early start will give you an edge over a late starter.

Let's understand it with an example.

A and B have Rs 5 lakh each. A has 30 years to retirement, and B has 20 years.

Both want to use the amount for creating a retirement corpus, and both expect a 12 per cent annualised return from their investments.

Let's see how much corpus they may create from this amount.

In 20 years, B can create an estimated corpus of Rs 48,23,147.

In 30 years, A can create an estimated corpus of Rs 1,49,79,961.

It shows that staying 10 extra years may take your retirement corpus to the next level. So, the one who starts early and has many years to retirement can create a much larger corpus compared to a late starter.

From Rs 3,75,000 one-time investment to Rs 1,26,00,000 corpus

Here, we will show how a Rs 3,75,000 one-time investment can grow to an approximately Rs 1,26,00,000 retirement corpus at an annualised return rate of 12 per cent. 

Retirement corpus from Rs 3,75,000 investment in 10 years

In 10 years, estimated capital gains will be Rs 7,89,693, and the estimated corpus will be Rs 11,64,693.

Retirement corpus from Rs 3,75,000 investment in 20 years

In 20 years, estimated capital gains will be Rs 32,42,360, and the estimated corpus will be Rs 36,17,360.

Retirement corpus from Rs 3,75,000 investment in 30 years

In 30 years, estimated capital gains will be Rs 1,08,59,971, and the estimated corpus will be Rs 1,12,34,971.

Retirement corpus from Rs 3,75,000 investment in 31 years

In 30 years, estimated capital gains will be Rs 1,22,08,167, and the estimated corpus will be Rs 1,25,83,167.

Due to the power of compounding, it took an estimated 11 years for the corpus to reach from Rs 36,17,360 to Rs 1,25,83,167.