How can people build ₹5-6 crore corpus for retirement if they begin investing at 40
As we approach our 40s, the reality of retirement starts to set in. We begin to think about our life after we stop working and how we can ensure a comfortable living for ourselves and our loved ones. Building a substantial retirement corpus is essential to achieve this goal. However, many of us may wonder if it’s too late to start investing for retirement at 40. The good news is that it’s never too late to start, and with a well-planned investment strategy, you can still build a significant corpus for your golden years.
According to a 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 daunting, but with a disciplined investment approach, it’s achievable.
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 help your investments grow exponentially over time. The earlier you start investing, the more time your money has to grow. However, even if you start investing at 40, you can still benefit from compounding.
For example, let’s assume you invest ₹55,000 per month in a SIP for 20 years, earning an average return of 12% per annum. In the first year, your investment would grow to around ₹6.6 lakh, earning an interest of around ₹66,000. In the second year, your investment would grow to around ₹13.2 lakh, earning an interest of around ₹1.58 lakh. As you can see, the interest earned in the second year is more than the total investment made in the first year. This is the power of compounding.
Investment Options for Retirement
There are several investment options available for retirement planning, including:
- Equity Mutual Funds: These funds invest in stocks and can provide higher returns over the long term. However, they come with higher risks, and it’s essential to have a diversified portfolio to minimize risks.
- Debt Mutual Funds: These funds invest in fixed-income securities, such as bonds and debentures, and provide relatively lower returns with lower risks.
- Public Provident Fund (PPF): PPF is a long-term investment option that provides a fixed return of around 7-8% per annum, with tax benefits.
- National Pension System (NPS): NPS is a retirement savings scheme that allows you to invest in a mix of equity, debt, and other assets, with tax benefits.
Creating a Retirement Investment Plan
To build a retirement corpus of ₹5-6 crore, you need to create a well-planned investment strategy. Here are some steps to follow:
- Set clear goals: Determine how much you need for retirement and when you want to retire.
- Assess your risk tolerance: Determine your risk tolerance and choose investments that align with it.
- Diversify your portfolio: Spread your investments across different asset classes, such as equity, debt, and gold, to minimize risks.
- Start investing regularly: Invest a fixed amount regularly, either monthly or quarterly, to benefit from compounding.
- Monitor and adjust: Periodically review your investment portfolio and adjust it as needed to ensure you’re on track to meet your retirement goals.
Conclusion
Building a retirement corpus of ₹5-6 crore may seem like a daunting task, but with a well-planned investment strategy, it’s achievable. Starting to invest at 40 may require more discipline and patience, but the power of compounding can still help you grow your wealth over time. By understanding your investment options, creating a retirement investment plan, and staying committed to your goals, you can ensure a comfortable and secure retirement.
Remember, it’s never too late to start investing for retirement. Start today, and let the power of compounding work in your favor.
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