555 Investment Formula: How you can retire 5 years earlier with over Rs 4.10 crore retirement corpus; see calculations with examples
555 Formula of SIP: Many people in their 20s believe that planning for retirement is too early. However, starting to plan early is key to building a substantial retirement corpus. The sooner you begin investing, the more time your money has to grow. Additionally, the power of compounding significantly boosts your savings when investments are made over a long period.
If your goal is to build a large retirement corpus and you are disciplined and consistent, then a mutual fund SIP (Systematic Investment Plan) could be a great option. By investing a portion of your salary in an SIP, you can grow your wealth over time.
(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for financial planning)
Investment Strategy
If you are considering an SIP, the "Triple 5" formula could be a great approach. This formula helps you reach your goal systematically and can even enable you to retire 5 years earlier than planned. For example, if the usual retirement age is 60, applying the "Triple 5" formula could allow you to retire at 55.
What is 555 formula?
To better understand how the "555" formula works, let’s break it down with an example. Let’s say you are 30 years old and start investing Rs 15,000 every month in an SIP. Assume an average annualised return of 12 per cent on your investments until retirement. Here’s how the formula plays out:
How does 555 formula work?
1. The First 5: The first “5” in the formula refers to retiring 5 years earlier. Instead of retiring at 60, you aim to retire at 55.
2. The Second 5: The second “5” means that to achieve this, you’ll need to increase your SIP contribution by 5% every year. This small but consistent increase can make a big difference over time.
3. The Third 5: The third “5” indicates that by following this strategy consistently, you could accumulate a fund of Rs 4.10 crore by the age of 55.
555 Formula: Your total investment in 25 years
According to the formula, if you start investing Rs 15,000 every month in a SIP at the age of 30 and increase it by 5 per cent each year, with an average return of 12 per cent. Over 25 years, by the age of 55, your total investment will be approximately Rs 85,90,878.
555 Formula: Estimated capital gain at 12% annualised return
Due to the power of compounding, your estimated capital gain can be around Rs 3,24,30,914 over 25 years, the calculation shows.
555 Formula: Calculating total amount received
With a 12 per cent return, your investment could grow to approximately Rs 4,10,21,792 in 25 years, which includes both the estimated capital gain and the amount invested.
555 Formula: Calculation
Investing in equity mutual fund (Rs 15,000 monthly SIP, 5% annual step-up SIP, 12% return, investing for 25 years)
Total investment = Rs 85,90,878
Capital gains = Rs 3,24,30,914
Total value = Rs 4,10,21,792
SIP Investment: Things to Remember
It’s important to know that SIP is a market-linked scheme, so returns are not guaranteed. The 12 per cent return mentioned above is an estimate, and actual returns may vary depending on market conditions.
555 Formula: Retirement Corpus at 13% annualised return
For example, if your investments yield a 13 per cent return, your total could rise to Rs 4,81,86,209 after 25 years.
555 Formula: Retirement Corpus at 14% annualised return
Similarly, if your investments yield a 14 per cent return, your total could rise to Rs 5,68,32,997 after 25 years.
Benefits of SIP
Despite the market risks, SIP is often considered a good option for wealth creation because it benefits from rupee cost averaging, which is most likely to mitigate losses in the long run. However, keep in mind the inherent risks of investing in SIP and plan accordingly.