Retirement Planning: How one-time investment of Rs 8,00,000 can create Rs 2,40,00,000 retirement corpus
Retirement Planning: Having a sizeable retirement corpus is necessary for everyone. People may solve this problem by having a one-time investment early in their life. Years of compounding is most likely to grow their corpus that may fulfil their retirement-related needs.
Retirement Planning: Everyone wants a comfortable post retirement life, where they have full financial freedom and don't have to depend on others for their daily expenses. But in old age, there are chances that they don't have employment or a job to earn regular income. But their expenses won't stop. They may remain the same, increase, or decrease, but one needs a substantial amount to live a comfortable life. The preparation of it should be started early in the career. Making investments can be one of the solutions. But if one starts investing early in their career, they can create a large retirement corpus even with a small investment amount because of compound growth. What is a retirement corpus; how can it be created; why making an early investment benefit; how the power of compounding can multiply your retirement corpus in the long run; and how a Rs 8,00,000 one-time investment can build a Rs 2,40,00,000 retirement corpus? Read the article to know.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
What is retirement corpus?
It is the amount that you can use during your retirement period. Based on one's lifestyle and financial goals, one can calculate the retirement corpus.
Why having retirement corpus is necessary
Life expectancy in India is increasing, and people are living longer than before. One may have quite a long retirement life. In order to live a financially free life, they need a significant amount. That amount should come from passive income. A good way to generate that income is either to build a retirement corpus or generate income sources.
How retirement corpus can be built?
It can be built through investing. One may invest 20 per cent amount of their monthly income continuously for years to create a corpus. They can have a mix of regular investment and a one-time investment, or, if they have a substantial amount to invest, they can build the corpus only through a one-time investment.
What's the benefit of starting to invest early?
The early starter can get more years to invest compared to a late beginner. They can invest a higher amount. At the same time, they can get more years for compound growth of their investments.
The other advantage is that during the early years of one's career, they don't have many liabilities, so they can begin their investing with a decent amount.
How compounding can help them
Just an edge of a few years can take one's corpus to many notches up. Understand it through a couple of examples.
Rs 10,000 monthly investment for 25, 30, 35 years
See, if one invests Rs 10,000 monthly and gets a 12 per cent annualised return on that, let's see how their corpus can grow in 25, 30, and 35 years.
In 25 years, the total investment will be Rs 30,00,000, estimated capital gains will be Rs 1,59,76,351, and the estimated corpus will be Rs 1,89,76,351.
In 30 years, the total investment will be Rs 36,00,000, estimated capital gains will be Rs 3,16,99,138, and the estimated corpus will be Rs 3,52,99,138.
Rs 10,000 monthly investment for 25, 30, 35 years
In 35 years, the total investment will be Rs 42,00,000, estimated capital gains will be Rs 6,07,52,691, and the estimated corpus will be Rs 6,49,52,691.
You can see the difference in the corpus from 25 years to 35 years. It's because the impact of compounding is more significant in the later years.
Corpus from Rs 2.5 lakh one-time investment in 25, 30, and 35 years
Now let's see how a Rs 2.5 lakh one-time (lump sum) investment will grow in 25, 30, and 35 years at 12 per cent annualised growth.
In 25 years, estimated capital gains will be Rs 40,00,016, and the expected corpus will be Rs 42,50,016.
Corpus from Rs 2.5 lakh one-time investment in 25, 30, and 35 years
In 30 years, estimated capital gains will be Rs 72,39,981, and the expected corpus will be Rs 74,89,981.
In 35 years, estimated capital gains will be Rs 1,29,49,905, and the expected corpus will be Rs 1,31,99,905.
From Rs 8,00,000 to Rs 2,40,00,000 corpus
Here we will calculate the corpus generated from Rs 8 lakh one-time investment. We will show how this investment will grow in 10, 20, and 30 years and at what stage will this investment reach the Rs 2.40 crore corpus.
Corpus from Rs 8,00,000 investment in 10 years
In 10 years, estimated capital gains will be Rs 16,84,679 and the estimated corpus will be Rs 24,84,679.
Corpus from Rs 8,00,000 investment in 20 years
In 20 years, estimated capital gains will be Rs 69,17,034, and the estimated corpus will be Rs 77,17,034.
Corpus from Rs 8,00,000 investment in 30 years
In 30 years, estimated capital gains will be Rs 2,31,67,938, and the estimated corpus will be Rs 2,39,67,938.
Power of Compounding
In all calculations, we can see that the corpus is growing faster with time. The amount is multiplying many times from 25 years to 35 years. This is why an early starter has an edge over a late starter. If one starts 10 years earlier, with a little extra investment, they can create a significantly higher corpus.