How can people build ₹5-6 crore corpus for retirement if they begin investing at 40
As we age, the importance of retirement planning becomes increasingly evident. With rising living costs and uncertainties in life, it’s crucial to start building a retirement corpus that can support us in our golden years. However, many individuals often find themselves wondering how to create a substantial retirement fund, especially if they begin investing later in life, around the age of 40.
Considering the retirement age to be 60, a person has approximately 20 years to accumulate a significant corpus. According to a report by NDTV Profit, to build a retirement corpus of ₹5 crore, an individual should invest ₹55,000 in a monthly Systematic Investment Plan (SIP) for 20 years, assuming an expected rate of return of 12%. Similarly, to build a retirement corpus of ₹6 crore, a person would need to invest ₹65,000 monthly in SIP at 12% return.
The key to building a substantial retirement corpus is to start early, be consistent, and make informed investment decisions. While investing at 40 may seem late, it’s essential to remember that it’s never too late to start. With a well-planned strategy and discipline, individuals can still accumulate a significant corpus by the time they retire.
Understanding the Power of Compounding
One of the most critical factors in building a substantial retirement corpus is the power of compounding. Compounding refers to the process of generating earnings on both the initial investment and any accrued interest over time. The longer the investment period, the more significant the impact of compounding.
In the case of a 40-year-old individual investing ₹55,000 monthly in SIP for 20 years at 12% return, the power of compounding plays a vital role in accumulating the desired corpus. By the time the individual retires at 60, the total amount invested would be approximately ₹13.2 lakhs (₹55,000 x 12 x 20). However, due to the compounding effect, the total corpus would be around ₹5 crore, assuming a 12% annual return.
Importance of Consistency and Discipline
Consistency and discipline are essential when it comes to building a retirement corpus. It’s crucial to invest a fixed amount regularly, without interrupting the investment cycle. Missing even a single installment can significantly impact the overall corpus.
To illustrate this, let’s consider an individual who invests ₹55,000 monthly in SIP for 20 years at 12% return but misses 2 years of investment due to unforeseen circumstances. In this scenario, the total amount invested would be approximately ₹10.4 lakhs (₹55,000 x 12 x 16), resulting in a corpus of around ₹3.5 crore, assuming a 12% annual return. This highlights the importance of consistency and discipline in achieving the desired retirement corpus.
Diversification and Risk Management
Diversification and risk management are critical components of a retirement investment strategy. It’s essential to allocate investments across different asset classes, such as equity, debt, and hybrid funds, to minimize risk and maximize returns.
A well-diversified portfolio can help mitigate market volatility and ensure that the investment grows steadily over time. For instance, an individual investing ₹55,000 monthly in SIP can allocate 60% to equity funds, 30% to debt funds, and 10% to hybrid funds. This allocation can help balance the risk and return, ensuring that the investment grows consistently over the 20-year period.
Tax Implications and Retirement Corpus
Tax implications can significantly impact the retirement corpus. It’s essential to consider the tax implications of investments and aim to minimize tax liabilities.
For example, investments in tax-saving instruments like Public Provident Fund (PPF), National Pension System (NPS), or tax-saving mutual funds can help reduce tax liabilities while accumulating the retirement corpus. Additionally, investments in tax-free instruments like equity-linked savings schemes (ELSS) can provide tax benefits while generating returns.
Conclusion
Building a retirement corpus of ₹5-6 crore may seem daunting, especially for individuals who begin investing at 40. However, with a well-planned strategy, discipline, and consistency, it’s possible to accumulate a substantial corpus by the time of retirement.
By understanding the power of compounding, importance of consistency and discipline, diversification and risk management, and tax implications, individuals can make informed investment decisions to achieve their retirement goals. As reported by NDTV Profit, investing ₹55,000 monthly in SIP for 20 years at 12% return can help build a retirement corpus of ₹5 crore, while investing ₹65,000 monthly can accumulate ₹6 crore.
Remember, it’s never too late to start building a retirement corpus. With the right strategy and discipline, individuals can ensure a comfortable and secure retirement.
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