Retirement Planning: How one-time investment of Rs 7,00,000 can create Rs 2,10,00,000 retirement corpus
Retirement Planning: You need a sizeable retirement corpus to live a comfortable life post retirement! To have that retirement fund, you need to start investing early in your career and maintain long-term consistency. You may generate your retirement corpus through periodic or one-time investment. If you have a long-term investment horizon, you may create a Rs 2,10,00,000 retirement corpus from a one-time investment of Rs 7,00,000. Know in how many years-
Retirement Planning, Power of Compounding: A comfortable life is the prime objective when we think about our retirement life. Everyone who has worked hard in their life, earned for years for their livelihood, and made sacrifices to save money is entitled to a happy retirement life. Specially at a stage where you may not have other income sources or a regular pension amount, the passive income from a retirement corpus may make you financially free. It can develop a sense of self-esteem since you don't need to depend on anyone for our daily expenses. One may create a retirement corpus from periodic or one-time investment. But what is a retirement corpus? Why is it necessary for anyone? How can it be created? Why does a long-term investment horizon matter in retirement planning? How can compounding multiply your investments? And how can a one-time investment of Rs 7,00,000 generate a retirement corpus of Rs 2,10,00,000? Know the answers to these questions here –
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
What does retirement corpus mean?
This is the amount that you require to make your retirement life financially free. It means that it can generate a passive income that can help you bear expenses for your retired life.
Why do you need retirement corpus?
In old age, there are high chances that one may not have a regular job or other source of income. But at the same time, your expenses won't stop. Where will you get money to run your expenses then? It can be generated if you have a retirement corpus in place.
How much retirement corpus is necessary?
When you calculate your retirement corpus, you need to keep 3 stages of your life in mind – your current age, retirement age, and life expectancy. E.g., if you are 30 years old, want to retire at 55 and expect to live 25 years more, you need an inflation-adjusted retirement corpus for 25 years, and you have equal years to create that corpus.
Inflation factor in retirement corpus building
Your pre- and post-retirement corpus will grow, but along with that, inflation will also grow. Things will become expensive. So, when you are calculating your retirement corpus, your expenses should be inflation-adjusted.
How you may create retirement corpus
Since a retirement corpus is a financial goal that should be met for a financially free retirement life, one needs growth and stability both in their investment. So, in the pre-retirement investment stage, one can have a mix of market-linked and non-market-linked investments that can provide growth and stability. In post-retirement life, you can be conservative, moving more or completely towards debt.
One may choose periodic or one-time investment to achieve this important financial goal.
Why time matters in compounding growth of investment
Compounding favours investors with a long-term investment horizon. You may achieve a retirement goal with a lesser amount if you have a large investment horizon. Let's understand with two examples.
Rs 5 crore retirement corpus target
A and B want to create a Rs 5 crore. A has 30 years to invest, and B has 20 years. See what their monthly SIP and one-time investment will be to achieve this target at a time when both are expecting a 12 per cent annualised return on their investments.
Rs 5 crore retirement corpus target
A can achieve the target with an estimated monthly SIP investment of Rs 16,230, where their overall investment will be Rs 58,42,800.
B will achieve the same target with an estimated Rs 54,360 monthly SIP investment, where their overall estimated investment will be Rs 1,30,46,400.
It shows that A can achieve the same target with an estimated less than half of the amount.
Rs 5,00,000 one-time investment to retirement corpus
A and B have Rs 5 lakh each to invest for their retirement corpus. A has 35 years to retirement, while B has 25. Both expect a 12 per cent annualised return on their investment. Let's see how much corpus they create from that Rs 5 lakh lump sum investment.
In 35 years, A's Rs 5,00,000 one-time investment will grow to an estimated retirement corpus of Rs 2,63,99,810.
Rs 5,00,000 one-time investment to retirement corpus
In 25 years, B's same investment will create an estimated corpus of Rs 85,00,032.
Staying for 10 extra years created more than 3 times the B's corpus for A.
From Rs 7,00,000 one-time investment to Rs 2,10,00,000 retirement corpus
We will see in how many years a target of Rs 2.10 crore can be achieved. We will break down calculations into 3 parts.
Corpus from Rs 7,00,000 one-time investment in 10 years
In 10 years, estimated capital gains will be Rs 14,74,094, and the estimated total amount will be Rs 21,74,094.
Corpus from Rs 7,00,000 one-time investment in 20 years
In 20 years, estimated capital gains will be Rs 60,52,405, and the estimated total amount will be Rs 67,52,405.
Corpus from Rs 7,00,000 one-time investment in 30 years
In 30 years, estimated capital gains will be Rs 2,02,71,945, and the estimated total amount will be Rs 2,09,71,945.
Conclusion
Here, you can see here that every 10 years, the retirement corpus is growing faster. It's because of the power of compounding, which works more effectively as time passes.