Power of compounding: Monthly income Rs 30,000? Here is how you can build Rs 3.17 crore retirement corpus by 55 years of age
It is never too late to invest. If your monthly income is Rs 30,000, you can build a retirement corpus of Rs 3.17 crore by 55. Yes, you heard that right. Let’s understand how investors can build a large amount by the time of retirement; see calculations.
If you have started a job or have an existing one, your monthly salary is Rs 30,000, and your job is the only source of your income, you should start retirement planning early. It is never too late to invest, but an early beginner has a significant advantage over a later starter. We will discuss how the power of compounding can help a 25-year-old individual earning Rs 30,000 a month, generate a Rs 3.17 crore retirement corpus by the time they turn 55.
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(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for financial planning)
Power of compounding
Retirement planning is an important goal for everyone given the rise in inflation and an increasing cost of living. However, by practicing the power of compounding through a systematic investment plan (SIP), investors can turn their monthly investment into a substantial retirement corpus in the long term. The power of compounding generates earnings not only on the original principal amount but also on the accumulated corpus generated over time.
How Step-up SIP can help create corpus
Step-up SIP lets investors increase their SIP amount automatically after the chosen period (6 months or 12 months). It is a systematic investment strategy that allows investors to gradually increase their mutual fund investments over time.
How does Step-up SIP work?
Investors can start with a basic investment amount, similar to regular SIP. Later, they can choose how often to increase their SIP amount, it could be annually or semi-annually.
Benefits of Step-up SIP
It adapts to your growing income and helps accelerate wealth creation, especially when combined with the power of compounding.
Mutual fund SIP calculation conditions
We will take the 20 per cent of monthly income as an investment amount. So, for Rs 30,000 monthly salary, the monthly SIP investment will be Rs 6,000. We are expecting 12 per cent annualised return on the SIP investment.
Step-up SIP calculation conditions
Since we are expecting the monthly income to rise every year, we will also go for a 5 per cent rise every year in the SIP amount. So, for the first year, it is Rs 6,000, and for the second year, it will be Rs 6,300.
How much will you earn in 30 years starting with a Rs 6,000 step-up SIP?
Annual Step-up: 5 per cent
Expected Return Rate: 12 per cent
Time Period: 30 years
Total Invested Amount: Rs 47,83,597
Estimated capital gains: Rs 2,68,56,839
Estimated retirement corpus after 30 Years: Rs 3,16,40,436
How much will be the retirement corpus in 10 years?
In 10 years, the investment through the step-up SIP will be Rs 9,05,608, the estimated capital gains will be Rs 7,66,557, and the estimated retirement corpus will be Rs 16,72,165.
How much will be retirement corpus in 20 years?
The invested amount during this period will be Rs 23,80,749, estimated capital gains will be Rs 58,61,825, and the estimated retirement corpus will be Rs 82,42,574.
How much will be retirement corpus in 30 years?
The magic of compounding will be more clear in 30 years as the invested amount will be Rs 47,83,597, estimated capital gains will be Rs 2,68,56,839, and the estimated retirement corpus will be Rs 3,16,40,436.
So, for someone who is earning Rs 30,000 a month and is starting mutual fund SIP investment at 25 years of age with a Rs 6,000 monthly step-up SIP, they can create an estimated retirement corpus of Rs 3.17 crore by 55.