Retirement Planning through SIP, One-Time Investments: How to get Rs 1 lakh monthly income at retirement if you are in 25-40-year age group
Retirement Planning: One can get an inflation-adjusted Rs 1 lakh a month if they invest consistently till the retirement age, or they can also achieve it if they invest a lump sum amount. The early start will give them more years for compound growth of their investment and they need to invest less compared to a late starter.
Retirement Planning: A Rs 1 lakh monthly income at present can fulfil many of your monthly needs. The amount will be good for many if they get it in the inflation-adjusted form at retirement. A regular substantial amount can help them achieve financial freedom and live the retirement life comfortably. But they need to prepare for it when they are earning. Creating a regular income from investment is not an uphill task, but it requires discipline and consistency in investing. Or they need to invest a one-time large amount. Know how one can create a regular income at retirement and what can be monthly and one-time investments if one wants to get Rs 1 lakh inflation-adjusted income at retirement.
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(Disclaimer: This is not investment advice. You need to do your own due diligence or consult an expert for financial planning.)
How monthly income for retirement is calculated
Suppose you are 25 years old and want to get an inflation-adjusted Rs 1 lakh monthly income at 60 years of age; the first thing you need to know is the value of Rs 1 lakh at that stage. If you take 6 per cent as the average inflation rate, you need an estimated Rs 5,74,349 monthly at 60.
Retirement age
The retirement age is not fixed. It's the age by when you want to be financially free. The calculation of the monthly income at retirement will depend on 3 factors; your current age, retirement age, and life expectancy. E.g., if your current age is 30, you need retirement at 55 and want money till 85, you have 25 years to make an investment and require income from that investment for 30 years.
How to know life expectancy
Since no one can predict their life, two factors can be taken into account to assume life expectancy. Either you can take a flat age, such as 100 years, or you can calculate it on the basis of your current health and family health history. In either case, your planning should be such that you don't fall short of money in life.
Monthly investment for retirement income
The benefit of investing a monthly amount is that you can adjust the investment according to your income and increase the amount to achieve the goal early. However, you need to keep revising your investment strategy to ensure that you are meeting your retirement goal on time.
One-time income for retirement income
Here, you don't need to worry about arranging money for investment every month. You can invest a large sum at once and sit back. However, in this case also, you need to make sure that you are getting the desired return to achieve your financial goal.
Tax implications
This is a very important aspect of retirement planning. Tax rules are not stagnant; they keep changing. For e.g., earlier, there was no provision of long-term capital gains tax on equity earnings, but the government introduced it in 2017. Such changes can derail your retirement planning. So, you need to revise your strategy if any new change is introduced.
Inflation
Inflation rises, and the value of money depreciates. So, taking an average inflation into account is necessary. One may take historical inflation reference for this purpose.
What we will calculate
We will calculate the monthly SIP and one-time (lump sum) amount a 25, 30, 35, and 40-year-old may need to get Rs 1 lakh monthly income at the retirement age of 60 years. The life expectancy in each case will be 80. The average inflation will be 6 per cent. Expected pre-retirement return will be 12 per cent and post-retirement expected return will be 6 per cent. We are assuming that the person doesn't have any investment for their retirement.
Monthly SIP investment 25-year-old needs to get Rs 1 lakh/month income
The expected monthly amount the person needs at 60 years of age will be 7,68,609.
The expected retirement corpus they require is Rs 18,44,66,160.
The estimated monthly SIP amount they need to get Rs 1 lakh/month is Rs 28,400.
One-time investment 25-year-old needs to get Rs 1 lakh/month income
The 25-year-old needs an estimated Rs 34,93,703 one-time investment to achieve that goal.
Monthly SIP investment 30-year-old needs to get Rs 1 lakh/month income
The expected monthly amount the person needs at 60 years of age will be 5,74,349.
The expected retirement corpus they require is Rs 13,78,43,760.
The estimated monthly SIP amount they need to get Rs 1 lakh/month is Rs 39,050.
One-time investment 30-year-old needs to get Rs 1 lakh/month income
The 30-year-old needs an estimated Rs 46,00,939 one-time investment to achieve that goal.
Monthly SIP investment 35-year-old needs to get Rs 1 lakh/month income
The expected monthly amount the person needs at 60 years of age will be 4,29,187.
The expected retirement corpus they require is Rs 10,30,04,880.
The estimated monthly SIP amount they need to get Rs 1 lakh/month is Rs 54,281.
One-time investment 35-year-old needs to get Rs 1 lakh/month income
The 35-year-old needs an estimated Rs 60,59,088 one-time investment to achieve that goal.
Monthly SIP investment 40-year-old needs to get Rs 1 lakh/month income
The expected monthly amount the person needs at 60 years of age will be 3,20,714.
The expected retirement corpus they require is Rs 7,69,71,360.
The estimated monthly SIP amount they need to get Rs 1 lakh/month is Rs 77,037.
One-time investment 40-year-old needs to get Rs 1 lakh/month income
The 40-year-old needs an estimated Rs 79,79,372 one-time investment to achieve that goal.