Retirement Planning: Can Rs 7 lakh one-time investment generate Rs 1,22,000 monthly income for 30 years?
Monthly Income From One-time Investment: Time plays an important role in the growth of one's investment. A small investment may generate a sizeable monthly income for retirement if one lets their investment grow for years. Even a Rs 7,00,000 lakh one-time investment may generate a monthly income of approximately Rs 1,22,000 for 30 years.
Monthly Income From One-time Investment: Everyone wants a financially sound retirement. A time where they don't need to depend on others for their daily expenses; where they have the freedom to live life their own way; where they have a say in every decision of post-retirement life because of their financially sound position. But how can that stage be achieved? By creating a retirement corpus through years of regular investment or through a one-time investment? It can be created either way if the investor gives sufficient time for their investment to grow. It is possible when they start their retirement planning journey early in their career, invest steadily, and withdraw money one time or in phases at their retirement. If one has perseverance, they may generate an approximately Rs 1,22,000 monthly income from a Rs 7,00,000 one-time investment. For that, the combination of a lump sum investment in mutual funds and a systematic withdrawal plan (SWP) may come handy. Know the importance of having a retirement corpus and how a Rs 7,00,000 one-time investment can lead to a Rs 1,22,000 monthly income for 30 years.
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(Disclaimer: This is not investment advice. Do your due diligence or consult an expert for financial planning,)
Importance of retirement corpus
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.
For how long your require retirement corpus
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.
How much should be retirement corpus
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.
How one can may build retirement corpus
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.
25, 30, 35, or 40? What's right age for retirement planning
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.
25, 30, 35, or 40? What's right age for retirement planning
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.
One-time investment for retirement planning
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.
One-time investment for retirement planning
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.
Calculations for the story
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.
Retirement corpus from Rs 7 lakh one-time 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.
Tax on retirement corpus
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.
Tax on retirement 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.
SWP planning
Here we are expecting a 7 per cent return from our retirement corpus. The target is to get a monthly income for 30 years.
Estimated monthly income for 30 years
The estimated monthly income from the post-tax retirement corpus will be Rs 1,22,000.
Total withdrawn amount in 30 years
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.