Retirement Planning: How one-time investment of Rs 9,00,000 can create Rs 2,70,00,000 retirement corpus
Retirement Planning: To have a comfortable retirement life, you need a sizeable corpus. To have a large retirement fund, one needs to start investing early and maintain consistency in the long term. The corpus can be generated through monthly investment or one-time investment. Having a one-time investment of Rs 9,00,000 may create a Rs 2,70,00,000 retirement corpus.
Retirement Planning, Power of Compounding: When we think about retirement life, comfort is the primary thing that strikes our mind. A person works hard throughout their life, earns for years for their livelihood, and makes sacrifices to save money. In their retirement life, when income sources deplete, all they want is a retirement life where they have full financial freedom to live their life. Where they don't have to depend on others for their expenses. Where they can live with the same self- esteem as they lived when they were earning. For that, they need an income. Since they may not have a job or a pension at that age, the income can be passive, generated through investments that they had made in their earning days. Such an investment can be monthly or one time. What is a retirement corpus? Why is it necessary? What are different ways to generate a retirement corpus? Why does investment duration matter? How does compounding multiply wealth? And how a one-time investment of Rs 9,00,000 can generate a retirement corpus of Rs 2,70,00,000? 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 is retirement corpus?
This is an amount that you require to live your retirement life independently. The amount should be enough to help you bear your expenses and maintain a good lifestyle throughout the expected life.
Why is retirement corpus necessary?
A retirement corpus is necessary because there are high chances that in old age, one may not have a regular income source, job, or monthly pension. In such a scenario, the only source of money can be income sources generated in the pre-retirement life or passive income from investments.
How much retirement corpus is necessary?
Three factors are necessary to calculate your retirement corpus- your current age, retirement age, and the number of years you need money post retirement. The amount can be calculated keeping inflation in mind.
How can retirement corpus be created?
Since your retirement corpus is your financial goal, it can be created through creating an income source, where your income increases with inflation, or through investments from where you get a regular income post retirement. One can make daily, weekly, monthly, quarterly, half-yearly, yearly, or one-time investments in instruments that can help meet the retirement corpus goal in the desired duration.
How compounding plays role in creating corpus
Compound benefits more to those who start investing early and do it for a long time. Even if their investment amount is small but years of investment are more, they can create a higher retirement corpus compared to a person with a higher investment amount and fewer investment years. Let's understand it with a couple of examples.
From Rs 6,000 monthly SIP investment to Rs 6 crore corpus
Creating a Rs 6 crore retirement corpus from a monthly SIP investment of Rs 6,000 seems to be a tough task, but one can achieve it in 39 years if they get a 12 per cent annualised return.
From Rs 6,000 monthly SIP investment to Rs 6 crore corpus
If the annualised return is 14 per cent, the same target can be achieved in 35 years.
From Rs 15 lakh one-time investment to Rs 12.47 crore retirement corpus
If one gets a 12 per cent annualised return on their one-time investment of Rs 15 lakh, they can create a Rs 12.47 crore corpus in 39 years.
From Rs 15 lakh one-time investment to Rs 12.47 crore retirement corpus
At a 13 per cent annualised, the corpus created in the same duration can be Rs 17.63 crore.
From Rs 9,00,000 one-time investment to Rs 2,70,00,000 retirement corpus
Here, we will see that in how many years this retirement goal can be achieved at 12 per cent annualised growth. We will break down calculations into 3 parts.
Corpus from Rs 9,00,000 one-time investment in 10 years
In 10 years, estimated capital gains will be Rs 18,95,263, and the estimated total amount will be Rs 27,95,263.
Corpus from Rs 9,00,000 one-time investment in 20 years
In 20 years, estimated capital gains will be Rs 77,81,664, and the estimated total amount will be Rs 86,81,664.
Corpus from Rs 9,00,000 one-time investment in 30 years
In 30 years, estimated capital gains will be Rs 2,60,63,930, and the estimated total amount will be Rs 2,69,63,930.
Conclusion
We can see here that every 10 years, the retirement corpus is increasing faster. It's because compounding works more effective with time. The older the investment gets, the faster the investment grows.