Retirement Planning: Can Rs 7 lakh one-time investment generate Rs 1,22,000 monthly income for 30 years?

It gives financial freedom to people post retirement. Most people don't have income sources or pension plans for their retirement. In such a situation, they need some income source from where they can withdraw an amount for their expenses. A retirement corpus can solve that problem.

When you plan your retirement, you consider an expected age up to which you want a regular income. That expected age can be any age, but one can consider their health, family health history, eating habits, and lifestyle to calculate life expectancy. You may need a retirement corpus for 20-40 years or more. 

If you are taking the expected age as 80 and retirement age as 60, your corpus should be sufficient for 20 years. If the expected age is higher, the corpus should be larger.

They can invest in market-linked and non-market-linked schemes to generate a retirement corpus. While linked investments can take care of their growth, fixed income investments will provide stability to their corpus. However, in both cases, their investment horizon should be long.

The planning is not about a specific age. It's about starting early. Let's take an example to understand that if you are targeting a Rs 5 crore retirement corpus by the age of 60 at a 12 per cent annualised return on your investments, what can be your monthly systematic investment plan (SIP) investment amount to achieve it if you start to invest at 25, 30, 35, or 40 years of age. If you start it at 25 years of age, you may achieve it with a monthly SIP investment of Rs 9,100, and an overall investment of Rs 38,22,000.

If you start it at 30 years of age, you may achieve it with a monthly SIP investment of Rs 16,230, and an overall investment of Rs 58,42,800. If you start it at 35 years of age, you may achieve it with a monthly SIP investment of Rs 29,380, and an overall investment of Rs 88,14,000. If you start it at 25 years of age, you may achieve it with a monthly SIP investment of Rs 54,440, and an overall investment of Rs 1,30,56,000.

Similarly, if you have a Rs 5 lakh lump sum amount for your retirement planning, and invest it in a mutual fund scheme where it can grow at a 12 per cent annualised return, here's how much retirement corpus it may generate if you start investing at 25, 30, 35, or 40 years of age and invest till 60. If you invest it at 25 years of age, you estimated capital gains will be Rs 2,58,99,810 and the estimated corpus will be Rs 2,63,99,810.

If you invest it at 30 years of age, you estimated capital gains will be Rs 1,44,79,961 and the estimated corpus will be Rs 1,49,79,961. If you invest it at 35 years of age, you estimated capital gains will be Rs 80,00,032 and the estimated corpus will be Rs 85,00,032. If you invest it at 40 years of age, you estimated capital gains will be Rs 43,23,147 and the estimated corpus will be Rs 48,23,147.

Here we will show how a Rs 7,00,000 one-time investment can grow in 30 years, and how one may get an approximately Rs 1,22,000 monthly income for 30 years from the corpus generated through investment. 

In 30 years, a Rs 7,00,000 one-time investment can generate estimated capital gains of Rs 2,02,71,945 and an estimated retirement corpus of Rs 2,09,71,945.

Since we need to use this as a retirement corpus, we will invest this amount in a conservative fund, where we are expecting a 7 per cent annualised return. The reason is that we can't take market risk with our retirement amount, so instead of being growth-oriented, we will be stability oriented and expect a modest growth. However, when we are redeeming this amount from a fund, we need to pay tax on the corpus. 

After a standard deduction of Rs 1,25,000, the taxable corpus will be Rs 2,01,46,945. At a 12.5 per cent income tax, the total tax on this income will be Rs 25,18,368.125. Estimated post-tax corpus will be Rs 1,84,53,576.875. This is the amount we will put in a mutual fund and start SWP from that.

Here we are expecting a 7 per cent return from our retirement corpus. The target is to get a monthly income for 30 years.  

The estimated monthly income from the post-tax retirement corpus will be Rs 1,22,000.

At Rs 1,22,000 a month, one can withdraw a total of Rs 4,39,20,000. After withdrawing this amount, the estimated remaining amount will be Rs 73,736.