Monthly Income From One-time Investment: On Rs 6,25,000 lump sum deposit, how you can draw Rs 1,09,000/month for 30 years
Monthly Income From One-time Investment: A one-time investment, if it grows for a long term, can create a corpus that may be used to draw a monthly income through Systematic Withdrawal Plan (SWP) for decades. Likewise, know how it is possible to draw Rs 1,09,000 monthly income for 30 years after investing Rs 6,25,000 one time for a long term.
Monthly Income From One-time Investment: Everyone wants a comfortable retirement where they don't have to depend on others for their daily expenses. But a comfortable retirement comes with a retirement plan. It's a strategy where you target an amount that can take care of your expenses for your retirement life. Adjusting for inflation, that amount is most likely to be large. So, one needs to plan for years in advance, where they can invest step by step to create a giant retirement corpus. They may pick a periodic or a one-time investment to achieve that goal. Both types of investments can create a corpus that may help you draw a monthly income for decades. A one-time investment of Rs 6,25,000 may also lead you to draw a monthly estimated income of Rs 1,09,000 for 30 years. Know how it may be possible!
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
What is importance of monthly income at retirement?
When you retire, there are chances that your income sources may deplete, but your expenses won't. They may decrease, remain the same as they were before retirement, or increase, but you will need a substantial amount even then. You may get that amount from a monthly income source.
What is importance of one-time investment?
A one-time investment is suitable if we have a long-term investment horizon. If we make a lump sum investment where we are getting a steady return. In the short term, the returns may not appear to be very appealing to us. But in the long term, it may increase wealth multiple times.
Is periodic investment also good?
Any investment that provides compound growth can multiply our returns by multiple times. However, for that, we need to give it sufficient time to grow. A periodic investment can also match with our income cycle. So, it may be more convenient for a majority of people.
What is importance of retirement corpus?
A retirement corpus is necessary to provide you passive income during your retirement phase. If you have calculated your corpus amount and planned your retirement according to that, then you need to achieve that goal by your retirement. The returns from this corpus will take care of your expenses.
How much retirement corpus is sufficient?
It will depend on your expenses post retirement. If you need money just to maintain your lifestyle, the calculation will be different. If you want to add more layers, such as money for travel goals, buying an appliance, and paying premiums, the amount will add up.
What is inflation factor for retirement corpus?
Because of inflation, the prices of most things increase. So you need a higher amount to purchase the same thing a year later. Similarly, your retirement corpus calculation will not be done in today's terms, but it will be inflation-adjusted considering your expenses will increase every year post retirement.
Sample of a retirement corpus
Suppose you are 30 years old, your today's expenses are Rs 40,000 a month, you want to retire at 60 and want a retirement corpus for another 25 years; your monthly expenses in the first year of your retirement will be Rs 1,72,878. If you take 6 per cent inflation, 12 per cent pre-retirement growth and 6 per cent post retirement growth, your corpus required at 60 will be Rs 6,89,22,000.
Role of time in retirement corpus growth
Whenever we talk about compound growth of corpus, the most important thing is its duration. In the long run, the difference of just 1 extra year may take your corpus to new heights.
Example of power of compounding
If you invest Rs 7,00,000 lump sum in a mutual fund scheme where you get a 12 per cent annualised return, in 35 years, your estimated corpus will be Rs 3,69,59,734. But if you get the same return for just 1 more year, your estimated corpus will grow to Rs 4,13,94,902.
Calculations for story
Our calculation will have 2 phases. In the first phase, we will show how a Rs 6,25,000 one-time investment at a 12 per cent annualised return will grow in 30 years. In the second phase, we will show how one may withdraw a monthly income of approximately Rs 1,09,000 if they get a 7 per cent annualised return from it.
Retirement corpus from Rs 6,25,000 one-time investment in 30 years
In 30 years, estimated capital gains from a Rs 6,25,000 one-time investment will be Rs 1,80,99,951, and the estimated corpus will be Rs 1,87,24,951.
Income tax on Rs 1,87,24,951 retirement corpus
At the current tax rates, there is a Rs 1,25,000 exemption on long term capital gain (LTCG). After that, there is a 12.5 per cent tax on income.
Estimated taxable income after Rs 1,25,000 exemption= Rs 1,79,74,951
Estimated tax at 12.5 per cent rate= Rs 22,46,868.875
Post-tax retirement corpus= Rs 1,64,78,082.125
Amount for SWP investment
The amount for the SWP investment in a mutual fund is Rs 1,64,78,082.125. We expect a 7 per cent annualised return from this investment.
What will be monthly income from SWP amount?
The estimated monthly pension one may draw from this amount will be Rs 1,08,990 for 30 years.
The estimated total withdrawn amount in 30 years will be Rs 3,92,36,400, and the balance amount after withdrawing that amount will be Rs 4,046.