Retirement Planning: How starting to invest at 20 instead of 40 can give you same corpus with just 1/10th investment amount

Retirement Planning: We often hear that starting to invest early can help you generate a larger corpus than when you start investing late. But, do you know that if you start early, you can generate a much larger corpus by investing a much lesser amount than when you start investing late, even if the duration of the investment is the same? This can happen in investment schemes where compound interest/growth is involved. By using the power of compounding, you may generate a corpus running into multiple crores by just starting your investment with Rs 5,000 monthly. You may pick the systematic investment plan (SIP) route for that.

Even if you expect a 12 per cent annual growth on your investments, by the time you reach the retirement age of 60, your corpus will have grown.

And for that, you don't need to invest for a full 40 years.

You need to invest for just 20 years, leave the amount as it is, and get compound growth on it for the next 20 years.

In comparison to the person who started investing at 40 years of age and had the amount and invested for 20 years, the person who started investing at 20 years can have the same retirement corpus with investing just 1/10th of the one who starts at 40. Let us understand it through examples.

Starting with Rs 5,000 SIP at 20

If you start investing in a mutual fund scheme through SIP at 20 years of age and keep investing till you turn 40, in 20 years, your investment will be Rs 12,00,000.

At 12 per cent growth, your long-term capital gains will be Rs 37,95,740, and the expected amount will be Rs 49,95,740.

Now at 40, if you stop investing and get 12 per cent annual growth on your investments, till the time you turn 60, your estimated return will be Rs 4,31,94,632, while your retirement corpus will be Rs 4,81,90,372.

So, you see, with just a Rs 12 lakh investment, you can make Rs 4.82 crore in 40 years. Now compare this with the person who started investing at 40.

Start investing at 40

If the retirement target amount for the person who is starting to invest at 40 is the same as that of the person who has started investing at 20 years of age, they will have to make a Rs 48,250 monthly SIP for 20 years.

In 20 years, the investment will be Rs 1,15,80,000, while long-term capital gains will be Rs 3,66,28,887, and the maturity amount will be Rs 4,82,08,887.

Thus, we see that the late starter needs to invest almost 10 times more than the early starter.

This shows the power of compounding.

The early starter who gets more time for compounding gets an edge over a late starter.

(Disclaimer: The article is for knowledge purpose only. Do your own due diligence or consult an expert before planning your retirement).