Monthly Income From One-time Investment: How you may draw Rs 1,18,000 monthly income for 30 years from Rs 6,75,000 lump sum deposit
Monthly Income From One-time Investment: A one-time investment may generate a substantial amount in the form of monthly income for decades if one has a long-term investment horizon. Even a mutual fund lump sum investment of Rs 6,75,000 may lead to a monthly income of nearly Rs 1,18,000 for 30 years if one stays in their investment for a long term.
Monthly Income From One-time Investment: Do you want a comfortable retirement where you live your life your own way? Every one of us wants to have a joyous life post retirement. But for that, we need to have a retirement corpus or income source that can help us sail through our retired life. If we aspire to having such an eventful life, the preparation for it should be done in advance. A possible solution is to have a sufficient retirement corpus that may take care of your post-retirement needs. For that, one should start their investment journey early to get the maximum benefit of the power of compounding for their investment growth. If one does so, even a small amount can balloon to a large-amount corpus. The corpus through the systematic withdrawal plan (SWP) may also lead to a substantial monthly income. The combination of a one-time investment and withdrawal through SWP in phases may also have one draw a monthly income of approximately Rs 1,18,000 for 30 years after making a one-time investment of Rs 6,75,000. Know how it may be possible.
Photos: Unsplash/Pixabay/Pexels
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
What is retirement planning?
Retirement planning is to create a corpus or source(s) of income for your retirement phase. The income should be passive and should increase every year by the rate of inflation. It should not dry out for life long. It will ensure a financially free retirement.
Why are corpus/income sources necessary for you?
In India, most people don't retire practically because they are not financially free. They depend on others for their expenses. A retirement corpus/income source can help avoid that situation. If they have income in place, they won't depend on others. You may live a financially stress-free life.
How to know size of retirement corpus
Based on your current lifestyle, you can calculate the retirement corpus. Your current age, retirement age, and the life expectancy are 3 important factors to calculate the corpus. Factoring in inflation, you can calculate the first-year expenditure of the retirement. Taking that as the payment for the first year, you can calculate the entire corpus required for life. You need to factor in inflation and post-retirement returns for that.
Example of a retirement corpus
Let's consider a few factors and see what the estimated retirement corpus for such a person will be.
Current age = 30
Retirement age = 60
Life expectancy = 80
Current monthly expenditure = Rs 40,000
Pre-retirement return = 12%
Post-retirement return = 6%
Inflation = 6%
For such a person, estimated expenditure in the first year of retirement will be Rs 2,29,740, and the estimated corpus required will be Rs 5,51,37,600.
Investment for retirement planning
One may go for a periodic investment such a monthly systematic investment plan (SIP) or a one-time (lump sum) investment. The investment schemes can be a mix of market-linked and non-linked. Their selection will depend on the risk appetite and years to retirement.
Example of investment for retirement corpus
Let's know the monthly SIP and lump sum amount required for the retirement corpus mentioned in the above example. For such a person, the estimated monthly SIP investment will be Rs 15,620, and the estimated one-time investment will be Rs 18,40,379.
Such a corpus is calculated through discounting the estimated corpus required by the rate of pre-retirement investment growth. For SIP calculation, one can take the nominal rate and divide it by 12 to calculate the monthly amount.
Life expectancy
Another important factor is how we can know how long we will live. Because without that, it is impossible to calculate the retirement corpus. For such a thing, you can consider the family health history, your current health, and your lifestyle habits.
Inflation for retirement corpus
The rate of inflation is also not stationary. It can change every year. So, for such a situation, we can take the average of long-term inflation such as 20 years.
Calculations for story
Our calculation will have 2 phases. In the first phase, we will calculate the estimated corpus from a one-time investment in 30 years. In the second phase, we will tell how one may draw a monthly estimated amount of nearly Rs 17,7000 from post-tax return. So, if a person starts the one-time investment at 25 years of age, at 55 years, they may withdraw that amount, and till the age of 85 years, they may withdraw a monthly amount from that corpus.
Retirement corpus from one-time investment of Rs 6,75,000
We are calculating the corpus at a 12 per cent annualised growth rate for 30 years.
In 30 years, estimated capital gains will be Rs 1,95,47,947, and the estimated retirement corpus will be Rs 2,02,22,947.
What will be income tax on retirement corpus?
Since all this return will come under long term capital gains (LTCG), the investor will get an exemption of Rs 1,25,000 on the corpus, which will make estimated taxable income Rs 1,94,22947. The current LTCG tax on it will be 12.50 per cent. So, the total estimated tax on this corpus will be Rs 24,27,868.375. Post-tax retirement corpus will be Rs 1,77,95,078.625.
SWP investment for retirement
You may also start SWP from the same fund where you had made a one-time investment. In that case, you may also avoid heavy taxation, and the monthly income amount may also be larger than Rs 1,17,700. But it is highly risky to start an SWP from an equity fund, as it may deplete heavily if the market goes through a long-term slump. So, the amount should be invested in a hybrid, debt, or both funds, where the return may be less but comparatively much safer compared to equity. So Rs 1,77,95,078.625 will be our SWP amount, and we are expecting a 7 per cent return on this investment.
Estimated monthly income from post-tax retirement corpus
One may draw an estimated monthly income of Rs 1,17,700 from this investment for 30 years.
Total withdrawn amount in 30 years
The estimated total drawn amount in 30 years will be Rs 4,23,72,000, while the estimated balance worth after withdrawing it will be Rs 5,512.