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 retirement and how we can secure our financial future. With the rising cost of living and increasing life expectancy, it’s essential to plan and invest wisely to build a substantial retirement corpus. Considering the retirement age to be 60, a person aged 40 has approximately 20 years to accumulate a significant amount of wealth. But, how much do we need to invest each month to build a retirement corpus of ₹5-6 crore?
According to a report by NDTV Profit, a person aged 40 should invest ₹55,000 in a monthly Systematic Investment Plan (SIP) for 20 years at an expected rate of return of 12% to build a retirement corpus of ₹5 crore. Similarly, to build a retirement corpus of ₹6 crore, a person would need to invest ₹65,000 monthly in SIP at 12% return. These figures may seem daunting, but with a well-planned investment strategy, 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 returns on your returns, which can lead to exponential growth over time. When you invest regularly, your money earns interest, and that interest earns interest, creating a snowball effect. The earlier you start investing, the more time your money has to grow, and the less you need to invest each month.
In the case of the ₹5-6 crore retirement corpus, the power of compounding plays a significant role. Assuming a 12% expected rate of return, the invested amount will grow significantly over the 20-year period. For instance, if you invest ₹55,000 per month for 20 years, your total investment would be approximately ₹1.32 crore (₹55,000 x 12 x 20). However, with a 12% expected rate of return, your corpus would grow to approximately ₹5 crore, a staggering return of nearly 4 times your total investment.
Investment Options for Retirement Planning
When it comes to investing for retirement, there are several options available. Some of the most popular investment options for retirement planning include:
- Equity Mutual Funds: These funds invest in stocks and offer the potential for high returns over the long term. They are a good option for those who can tolerate moderate to high risk.
- National Pension System (NPS): The NPS is a government-sponsored retirement savings scheme that offers tax benefits and a range of investment options.
- Public Provident Fund (PPF): The PPF is a long-term savings scheme that offers a fixed rate of return and tax benefits.
- Real Estate: Investing in real estate can provide a steady income stream and potential long-term appreciation in value.
Tips for Building a Retirement Corpus
While investing ₹55,000-₹65,000 per month may seem like a significant challenge, there are several tips that can help you build a substantial retirement corpus:
- Start Early: The earlier you start investing, the more time your money has to grow.
- Be Consistent: Invest regularly, even if it’s a small amount, to harness the power of compounding.
- Diversify: Spread your investments across different asset classes to minimize risk.
- Monitor and Adjust: Regularly review your investment portfolio and adjust your strategy as needed.
- Avoid Withdrawals: Try to avoid withdrawing from your retirement corpus until you actually retire.
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. By harnessing the power of compounding and investing regularly, you can create a substantial corpus that will provide for your financial needs in retirement. Remember to start early, be consistent, diversify, monitor and adjust, and avoid withdrawals to ensure a secure financial future.
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