How can people build ₹5-6 crore corpus for retirement if they begin investing at 40
As we age, the importance of planning for retirement becomes increasingly evident. With rising life expectancy and the ever-present uncertainty of financial markets, building a substantial retirement corpus is crucial to ensure a comfortable post-work life. For individuals who start investing at the age of 40, the task may seem daunting, but with a well-thought-out strategy, it is achievable. According to a report by NDTV Profit, a person aged 40 can build a retirement corpus of ₹5-6 crore by investing in a monthly Systematic Investment Plan (SIP) with a 12% expected rate of return.
Considering the retirement age to be 60, a person aged 40 has 20 years to accumulate the desired corpus. To build a retirement corpus of ₹5 crore, an individual would need to invest ₹55,000 in a monthly SIP for 20 years at a 12% expected rate of return. This calculation assumes that the investments will grow at a steady rate, and the individual will not make any withdrawals during the accumulation phase.
On the other hand, to build a retirement corpus of ₹6 crore, a person would need to invest ₹65,000 monthly in SIP at a 12% return. This higher investment amount will enable the individual to accumulate the additional ₹1 crore required to reach the target corpus.
It is essential to note that these calculations are based on certain assumptions, including the expected rate of return and the time horizon. In reality, the actual returns may vary depending on the performance of the investments and market conditions. Therefore, it is crucial to review and adjust the investment strategy periodically to ensure that the individual is on track to meet their retirement goals.
To illustrate the importance of starting early, let us consider an example. Suppose two individuals, Ramesh and Suresh, both want to build a retirement corpus of ₹5 crore. Ramesh starts investing at the age of 40, while Suresh begins at 30. Assuming a 12% expected rate of return, Ramesh would need to invest ₹55,000 monthly for 20 years to reach his target. In contrast, Suresh, who starts investing 10 years earlier, would need to invest only ₹25,000 monthly for 30 years to accumulate the same amount. This example highlights the benefits of early investing and the power of compounding.
In addition to starting early, it is also essential to diversify one’s investments to minimize risk. A well-diversified portfolio can help reduce the impact of market fluctuations and ensure that the investments grow steadily over time. Some popular investment options for retirement planning include equity mutual funds, debt mutual funds, and the National Pension System (NPS).
Equity mutual funds are a popular choice for retirement planning due to their potential for high returns over the long term. These funds invest in a diversified portfolio of stocks, which can help reduce risk and increase the potential for growth. However, they also come with higher risks, and investors should be prepared for market volatility.
Debt mutual funds, on the other hand, are a more conservative option, investing in a portfolio of debt securities such as bonds and government securities. These funds are generally less risky than equity funds but offer lower returns. They are suitable for investors who are risk-averse or have a shorter time horizon.
The National Pension System (NPS) is another popular option for retirement planning. It is a voluntary retirement savings scheme that allows investors to contribute a portion of their income to a pension fund. The NPS offers a range of investment options, including equity, debt, and alternative investments, and provides tax benefits to investors.
In conclusion, building a retirement corpus of ₹5-6 crore is achievable for individuals who start investing at the age of 40. By investing ₹55,000-₹65,000 monthly in a SIP with a 12% expected rate of return, individuals can accumulate the desired corpus over 20 years. However, it is essential to start early, diversify investments, and review the investment strategy periodically to ensure that the individual is on track to meet their retirement goals.
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