Retirement Planning via One-time Investment: How Rs 7,25,000 one-time investment can create a retirement corpus of Rs 2,44,00,000
Retirement Planning via One-time Investment: An investor can generate a giant retirement corpus from a small one-time investment amount if they give their investment sufficient time to grow. Their investment of a few lakh rupees can convert into many crores if they have a long-term investment horizon. Even a Rs 7,25,000 one-time investment may generate a nearly Rs 2,44,00,000 retirement corpus in the long term! Know how many years it may take!
Retirement Planning via One-time Investment: Just imagine your small one-time investment growing into a large retirement corpus while you are busy in your life, doing things that matter for your personal growth and career. Such is the power of compounding! It helps grow your investment into an enormous amount even when you are not paying much attention to it. Time plays a key role in this transformation. If you have the patience to see your investment grow like a tree, its fruits can help you achieve many of your financial goals. Your small investment can grow to a corpus that may help you achieve financial freedom in your retirement. A Rs 7,25,000 lump sum investment in a mutual fund may deliver a retirement corpus of approximately Rs 2,44,00,000! Know in how many years?
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
What is passive income for retirement?
Passive income is the income for which you don't have to work to earn, which comes from the return of your investments or other income sources. If you have a source of passive income that can take care of your future expenses, you can take your retirement any day. You don't need to be 55 or 60 years old for that.
Retirement corpus for passive income
A retirement corpus can be a huge or only source of passive income. You may build this corpus in your working years. However, a retirement corpus should be enough to help you maintain your lifestyle post retirement.
How big should retirement corpus be?
Considering your current expenses, you can assess the retirement corpus you require in the first year of your retirement after adjusting against inflation. Taking as the payment, you can calculate the retirement corpus you require for the rest of your life. While doing so, you have to take investment return and inflation as factors for your calculation.
When you also have other financial goals post retirement
Other than your daily expenses, you may have other financial goals post retirement, such as travelling, buying a vehicle, paying premiums of your insurance policies, or passing money to your kids as inheritance. The calculations for all those expenses will be done separately and will be part of the retirement corpus.
How to achieve retirement corpus target
Retirement planning is best suited for people with a long-term investment horizon. They will get sufficient years for compound growth of their investments. After assessing a retirement corpus one requires, they should know the years they have for investment.
How to achieve retirement corpus target
Based on 2 figures, they can calculate the required rate of return. They can pick the fixed return assets, mutual funds, equity, or other schemes to invest in. The aim should be to maintain the required rate of return. Since market-linked instruments may also give negative returns, one needs to keep reviewing their retirement investment strategy every six months or so.
Tax on retirement corpus
This is a very important aspect of retirement planning. Taxation rules change all the time, and because of that, you may also need to change your strategy. Because the retirement corpus you are aiming at should be post-tax.
What if one achieves retirement corpus early?
In that case, they may withdraw their amount and invest it in a conservative scheme, where their corpus is at a minimum risk. Because at that stage, the target is not to get high returns but to get a regular income.
Power of compounding for retirement corpus building
Since compound growth can help your investments grow faster with time, an early starter will always have an edge. Let's take an example of chasing a Rs 5 crore retirement corpus target starting at age 25 and 30. The retirement age is 60 years, the annualised rate of return is 12 per cent, and we are taking the example of a monthly SIP investment.
Power of compounding for retirement corpus building
If the investor starts it at 25 years of age, their investment period will be 35 years, and the estimated monthly SIP amount will be Rs 7,700.
But if they start 5 years late at 30 years of age, their estimated monthly SIP investment will be Rs 14,160.
Calculations for story
We will calculate how many years a 7,25,000 one-time investment can create a retirement corpus of nearly Rs 2,44,00,000. We will calculate it at a 12 per cent annualised return and will show how it will grow in different phases.
Retirement corpus from Rs 7,25,000 investment in 10 years
In 10 years, estimated capital gains will be Rs 15,26,740, and the estimated retirement corpus will be Rs 22,51,740.
Retirement corpus from Rs 7,25,000 investment in 20 years
In 20 years, estimated capital gains will be Rs 62,68,562, and the estimated retirement corpus will be Rs 69,93,562.
Retirement corpus from Rs 7,25,000 investment in 30 years
In 30 years, estimated capital gains will be Rs 2,09,95,944, and the estimated retirement corpus will be Rs 2,17,20,944.
Retirement corpus from Rs 7,25,000 investment in 31 years
In 31 years, estimated capital gains will be Rs 2,36,02,457, and the estimated retirement corpus will be Rs 2,43,27,457.