How can people build ₹5-6 crore corpus for retirement if they begin investing at 40
As we approach our 40s, many of us start thinking about our retirement goals and how we can secure our financial future. Building a substantial corpus for retirement is essential to ensure that we can maintain our standard of living and pursue our passions without worrying about money. However, creating a sizable retirement fund can seem daunting, especially if we start late. But, with a well-planned investment strategy, it’s possible to accumulate a significant amount of wealth even if we begin investing at 40.
According to a recent report by NDTV Profit, considering the retirement age to be 60, a person aged 40 should invest ₹55,000 in a monthly Systematic Investment Plan (SIP) for 20 years at a 12% expected rate of return to build a retirement corpus of ₹5 crore. To build a retirement corpus of ₹6 crore, a person would need to invest ₹65,000 monthly in SIP at 12% return. These numbers may seem staggering, but with a disciplined approach to investing, it’s achievable.
So, how can people build a ₹5-6 crore corpus for retirement if they begin investing at 40? Let’s break it down and explore the possibilities.
Understanding the Power of Compounding
The key to building a substantial retirement corpus is to harness the power of compounding. Compounding is the process of earning interest on interest, which can lead to exponential growth in our investments over time. The earlier we start investing, the more time our money has to grow. However, even if we start investing at 40, we can still leverage the power of compounding to our advantage.
Assuming a 12% annual return, which is a reasonable expectation from a well-diversified equity portfolio, our investments can grow significantly over 20 years. For instance, if we invest ₹55,000 per month in a SIP, our total investment over 20 years would be approximately ₹13.2 lakhs (₹55,000 x 12 x 20). However, with a 12% annual return, our corpus can grow to around ₹5 crore, which is a staggering return on investment.
Investment Options for Retirement
So, where should we invest our money to build a ₹5-6 crore corpus for retirement? There are several investment options available, each with its own set of benefits and risks. Some of the most popular investment options for retirement include:
- Equity Mutual Funds: Equity mutual funds invest in a diversified portfolio of stocks, which can provide high returns over the long term. They are an excellent option for retirement investing, as they offer the potential for high growth and are relatively liquid.
- National Pension System (NPS): The NPS is a government-backed retirement scheme that allows individuals to invest in a mix of equity, debt, and other assets. It offers tax benefits and a relatively low-cost investment option.
- Public Provident Fund (PPF): The PPF is a long-term investment option that offers a fixed return, currently at 7.1% per annum. It’s a low-risk investment option that can provide a steady stream of income during retirement.
- Real Estate: Investing in real estate can provide a steady stream of rental income and potential long-term appreciation in property value. However, it’s essential to be cautious, as real estate investments can be illiquid and subject to market fluctuations.
Creating a Retirement Investment Plan
To build a ₹5-6 crore corpus for retirement, it’s essential to create a well-structured investment plan. Here are some steps to consider:
- Set clear goals: Define your retirement goals and the amount you need to accumulate to achieve them.
- Assess your risk tolerance: Determine your risk tolerance and investment horizon to choose the right investment options.
- Diversify your portfolio: Spread your investments across different asset classes to minimize risk and maximize returns.
- Start early: Begin investing as soon as possible, even if it’s at 40, to leverage the power of compounding.
- Be disciplined: Invest regularly and avoid withdrawing from your investments to ensure consistent growth.
Conclusion
Building a ₹5-6 crore corpus for retirement may seem daunting, but it’s achievable with a well-planned investment strategy. By understanding the power of compounding, choosing the right investment options, and creating a structured investment plan, individuals can secure their financial future and enjoy a comfortable retirement. Remember, it’s never too late to start investing, and even a late start at 40 can lead to a substantial retirement corpus with discipline and patience.
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