Monthly Income From One-time Investment: How Rs 10,00,000 one-time investment for 25 years can generate Rs 1,11,000 monthly income for 30 years
Monthly Income From One-time Investment: A one-time investment can be a source to get a sizeable monthly income if one uses the combination of mutual fund lump sum and systematic withdrawal plan (SWP) tactfully. A Rs 10,00,000 one-time investment for 25 years may generate an estimated monthly income of approximately Rs 1,11,000 for 30 years! Know how it may be possible-
Monthly Income From One-time Investment: The comfort of a regular income in the retirement period provides a person financial freedom and confidence to live life their own way. If they have a regular income, they can take care of their expenses. They don't have to depend on anyone to purchase things required for their daily life! But a monthly income may also be generated through a one-time (mutual fund) lump sum investment if an investor lets it grow for years before starting their retirement phase. In that period, they may withdraw a monthly income for decades. Using that tactic, they may also opt for an early retirement. If an investor makes a one-time investment (lump sum) of Rs 10,00,000 in a mutual fund and lets it grow for 25 years, they may withdraw a monthly estimated income of Rs 1,11,000 for 30 years through systematic withdrawal plan (SWP). Let's see how this combination for regular income generation may work.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Importance of regular income at retirement
Retirement is an important stage for everyone. But it can be eventful if one has financially planned for it in advance. If they have made themselves financially free, they don't need to depend on anyone for expenses for the rest of their life.
Financial freedom for retirement
Financial freedom is a stage for an individual where they have income for the rest of their life without working for it. The income will be passively generated from either investment or from other income sources! If one achieves that stage early in life, they may opt for an early retirement.
Inflation-adjusted amount for retirement
To calculate your retirement amount, you need to know your current expenditure. If your lifestyle for the rest of your life is the same, your expenditure will still increase because of inflation. So, the calculation of the retirement corpus will be based on the inflation rate.
What if someone has other financial goals
If someone has other financial goals to achieve post-retirement, the calculation of that expenditure will also be based on inflation. It will be added to the required retirement corpus.
Investment to achieve financial goals
Once you know your expenses, the next goal is to know how to build the retirement corpus. One can have a mix of market-linked and non-market-linked investment options to build a corpus. While market-linked investment options will ensure growth in the long term, non-linked investment options will ensure safety.
What if investments are not performing well?
There can be poor phases for investment such as a market fall, interest rate changes, or revised tax rules. In such a situation, periodic review of investment planning for retirement is necessary.
Calculations for story
In our story, we will show how a Rs 10,00,000 lump sum investment in a mutual fund scheme for 25 years may generate a retirement corpus, which, post-tax, may generate an estimated monthly income of around Rs 1,11,000 for the next 30 years. So, if a person is 25 years old and invests Rs 10 lakh for 25 years, at 50 years of age, they may start withdrawing an estimated monthly income of Rs 1,11,000 till 80 years of age.
Retirement corpus from Rs 10,00,000 investment in 25 years
Here, we will calculate the investment at 12.5 per cent annualised growth.
In 25 years, estimated capital gains will be Rs 1,80,02,602, and the estimated corpus generated will be Rs 1,90,02,602.
Income tax on retirement corpus
Long term capital gain (LTCG) tax will apply to this corpus, where the investor will get an exemption of Rs 1,25,000 on capital gains. For the rest of the gains, the tax rate will be 12.5 per cent.
Income tax on retirement corpus
After a deduction of Rs 1,25,000, the taxable capital gains will be Rs 1,78,77602.
The estimated tax on this income will be Rs 22,34,700.25.
The post-tax estimated corpus will be Rs 1,67,67,901.75.
SWP corpus for monthly income
Systematic withdrawal plan (SWP) is a method to withdraw a corpus from a mutual fund scheme periodically. An investor tells the fund house to sell net asset value (NAV) of a fixed amount every month from their investment and deposit that amount to the investor's account.
SWP corpus for monthly income
For our story, the SWP corpus will be Rs 1,67,67,901.75. We will invest this in a conservative or a debt mutual fund where our expected return will be 7 per cent. We will be conservative with this investment since it is for retirement, and we can't take a risk as we need a regular monthly income.
How to get Rs 1,11,000 monthly income
If we get a 7 per cent annualised return from the corpus of Rs 1,67,67,901.75, the estimated monthly income for this investment can be Rs 110,910.
Total withdrawn amount in 30 years
The estimated withdrawn amount in 30 years will be Rs 3,99,27,600, and the estimated balance after withdrawing this amount will be Rs 358.