Financial planning | Do you want to take early retirement? Follow this investment strategy to accumulate Rs 10 crore by 50

0


Representation image

Highlights

  • When it comes to building up a retirement corpus, people generally play it safe and opt for risk-free, fixed-interest instruments.
  • However, these instruments cannot give you more than 7% return. In addition, they are not tax advantageous
  • Financial planners say early retirement is possible if a person starts investing at an early age and continues until retirement without fail.

New Delhi: No one in this world wants to work until the age of 60. But despite the reluctance, many people work until the retirement age of 60 because they need to acquire an amount that will be sufficient to finance their retirement life. Usually, this does not become possible until the age of 60. The average life expectancy in India having increased considerably, it is necessary to accumulate a corpus which will be sufficient to finance a retirement life of at least 25 years. But if you plan to retire early, say at age 50, you need to build up a larger body of work so that it can fund a 35-year retirement life.

Many people also want to pursue their own post-retirement dreams for which they need to build up a larger body of work. It should be mentioned here that in order to maintain your current lifestyle even after retirement, you need to account for inflation and save accordingly.

If you are 30 years old and your household expenses are Rs 50,000 per month (Rs 6 lakh per year), then upon retirement (at age 50) you will need Rs 1,32,665 per month or Rs 15.92 lakh per year to maintain the same lifestyle. Here we have assumed an average inflation of 5% over the next 20 years. If inflation remains above 5%, the amount required at retirement will increase further.

Financial planners say that early retirement (at age 50) is possible if a person starts investing at an early age and continues until retirement without fail.

Where to invest for retirement

When it comes to building up a retirement corpus, people generally play it safe and opt for risk-free, fixed-interest instruments like Fixed Deposit or PPF, which give a return of 6 to 7.5 at best. % at present. And also it is not tax advantageous. Financial planners say that retirement is a long-term goal, you can take exposure to stocks for better returns, which will help you build a larger retirement body even with a small monthly investment.

Large-cap diversified mutual funds, multi-cap funds, which have the potential to generate an annualized return of 12 to 15% over the long term, can be included in your portfolio to build up a bigger retirement fund, depending on the fund. financial planners. If you are afraid of taking full exposure to equities, you can go for the National Pension System (NPS) by taking 25:75 exposure to debt / equities, which will help you generate an annualized return of around 10%, according to experts. But if you are aiming for a retirement corpus of Rs 10 crore by the age of 50, then there is no other alternative than direct mutual funds or mutual funds, which can generate yields of 12 to 15% on average over a period of 20 years. Since most retail investors do not have the expertise to invest directly in stocks, it is prudent to go the route of equity mutual funds. And for a regular investment, SIP mode is best suited, say financial planners.

How much do you need to invest each month to accumulate Rs 5 crore

The amount you need to invest to accumulate a corpus of Rs 10 crore will depend on the time of day you retire and the investment vehicle you choose. For example, your current age is 25 and you want to retire at age 50, then you need to invest Rs 53,500 each month via SIP for the next 25 years to accumulate Rs 10 crore. This assumes an annual return of 12%.

The amount required will go up to Rs 60,500 if you start one year later at the age of 26. Likewise, if you delay it for five more years then you will have to invest Rs 101,500 each month to accumulate the same amount. The required amount increases significantly with an investment delay as the effect of the composition decreases.

Here is an illustration of how much you need to save each month to accumulate Rs 10 crore by the age of 50, assuming your investment grows at an annual rate of 12%.

How much do you need to invest each month to accumulate Rs 10 crore before the age of 50
Current age Expected annual return Investment required
25 years 12% Rs 53 224
26 years 12% Rs 60 382
27 years old 12% 68,565 rupees
28 years old 12% 77 938 rupees
29 years 12% 88 700 rupees
30 years 12% 1 01 086 rupees
31 years 12% Rs 1,15,386
32 years old 12% Rs 1,31,950
33 Years 12% 1 51 216 rupees
34 years old 12% Rs 1,73,725
35 years 12% Rs 2,00,168

What to do if you cannot invest the required amount now

Many young employees will not be able to save the above amount at the start of their careers as the income level generally remains low during this period. Financial planners say that one can opt for a progressive SIP to accumulate the above amount. In progressive SIP, young employees can start with a small amount of SIP at first, and then they can increase the amount of SIP each year by a fixed percentage or by a fixed amount to reach the target retirement corpus. In the example above, if a 25 year old wants to accumulate Rs 10 crore by the age of 50, they can start with a SIP of Rs 25,410 each month and increase the SIP amount by 10% each year until age 50 to accumulate Rs 10 crore by age 50 instead of Rs 53,224 each month in a normal SIP.

Likewise, for people aged 26-35, the following amount of progressive SIP will be required to accumulate a target corpus of Rs 10 crore before the age of 50 if they follow the progressive SIP route with an increase of 10. % of SIP amount each year:

How much escalated SIP is needed to accumulate Rs 10 crore before age 50
Current age Expected annual return Investment required
25 years 12% 25,410 rupees
26 years 12% 29 398 rupees
27 years old 12% 34 071 rupees
28 years old 12% Rs 39 560
29 years 12% Rs 46,028
30 years 12% 53 673 rupees
31 years 12% 62 743 rupees
32 years old 12% 73,548 rupees
33 Years 12% 86,477 rupees
34 years old 12% 1 02 031 rupees
35 years 12% Rs 1,20,850

It should be mentioned here that you should also create an emergency fund with your regular retirement investment so that your retirement corpus remains intact in the event of an emergency like job loss, hospitalization or any pandemic, that we are currently witnessing, which may create a potential risk for employment.

An emergency corpus should match your six-month household expenses, including IMEs where applicable. The current Covid-19 pandemic has left many unemployed. It is therefore essential to have an emergency corpus.


Leave A Reply

Your email address will not be published.