Representational image  |  Photo Credit: BCCL
New Delhi: Nobody in this world wants to work till the age of 60. But despite reluctance, many people work till the superannuation age of 60 because they need to acquire an amount that will be sufficient to fund their retired life. Generally, this does not become possible before the age of 60. As the average life expectancy in India has increased considerably, one needs to accumulate a corpus that will be sufficient to fund retired life of at least 25 years. But if you are planning to retire early, say by the age 50, you need to acquire a bigger corpus so that it can fund retired life of 35 years.
Many people also want to pursue their own dreams after retirement for which they need to accumulate a bigger corpus. Worth mentioning here is that in order to maintain your present lifestyle even after retirement you need to factor in inflation and save accordingly.
If you are 30 years old and your household expenses are Rs 50,000 per month (Rs 6 lakh per annum) then at the time of retirement (at 50) you will require Rs 1,32,665 per month or Rs 15.92 lakh per annum to maintain the same lifestyle. Here we have assumed an average inflation of 5% over the next 20 years. If inflation remains higher than 5% then the required amount at retirement will increase further.
Financial planners say early retirement (at the age 50) is possible if an individual starts investing at an early age and continues it till retirement without fail.
Where to invest for retirement
When it comes to accumulation of retirement corpus, people generally play safe and go for fixed interest-bearing risk-free instruments like fixed deposit, or PPF, which at best give 6-7.5% return at present. And also this is not tax efficient. Financial planners say as retirement is a long term goal, one can take equity exposure to get better returns, which will help you accumulate a bigger retirement corpus even with a small amount of monthly investment.
Diversified large-cap mutual funds, multicap funds, which have the potential to generate an annualised return of 12-15% over the longer term, can be included in your portfolio to accumulate a bigger retirement kitty, say financial planners. If you are afraid of taking full exposure in equity, then you can go for National Pension System (NPS) by taking 25:75 debt/equity exposure, which will help you generate an annualised return of around 10%, say experts. But if you are aiming for a retirement corpus of Rs 10 crore by the age of 50, then there is no other alternative than direct equity or equity mutual funds, that can generate 12-15% returns on average over the period of 20 years. As most of the retail investors lack the expertise to invest directly in equities, it is safe to follow the equity mutual fund route. And for regular investment the SIP mode is the best suited, say financial planners.
How much you need to invest every month to accumulate Rs 5 crore
The amount you need to invest to accumulate a corpus of Rs 10 crore will depend on your time to retire and the investment vehicle you choose. For example, your current age is 25 years and you want to retire at the age of 50 years then you need to invest Rs 53,500 every month through SIP for the next 25 years to accumulate Rs 10 crore. This is assuming an annual return of 12%.
The required amount will go up to Rs 60,500 if you start one year later at the age of 26. Similarly, if you delay it by five more years, then you will be required to invest Rs 101,500 every month to accumulate the same amount. The required amount increases drastically with a delay in investment as the effect of compounding reduces.
Here is an illustration of how much you need to save every month to accumulate Rs 10 crore by the age 50 assuming that your investment grows at an annual rate of 12%.
| Current Age | Expected annual return | Investment required |
| 25 yrs | 12% | Rs 53,224 |
| 26 yrs | 12% | Rs 60,382 |
| 27 yrs | 12% | Rs 68,565 |
| 28 yrs | 12% | Rs 77,938 |
| 29 yrs | 12% | Rs 88,700 |
| 30 yrs | 12% | Rs 1,01,086 |
| 31 yrs | 12% | Rs 1,15,386 |
| 32 yrs | 12% | Rs 1,31,950 |
| 33 yrs | 12% | Rs 1,51,216 |
| 34 yrs | 12% | Rs 1,73,725 |
| 35 yrs | 12% | Rs 2,00,168 |
What if you cannot invest the required amount now
Many young earners won’t be able to save the above amount during the beginning of their career as income level generally remains low during that time. Financial planners say one can go for step-up SIP to accumulate the above amount. In step-up SIP, young earners can start with a small amount of SIP at the beginning and then they can increase the SIP amount every year by a fixed percentage or by a fixed amount to achieve the targeted amount. In the above example, if a person aged 25 years wants to accumulate Rs 10 crore by the age 50 then he can start with a SIP of Rs 25,410 every month and increase the SIP amount by 10% every year till the age of 50 to accumulate Rs 10 crore by the age 50 instead of Rs 53,224 every month in a normal SIP.
Similarly, for people aged between 26-35, the following amount of step-up SIP will be required to accumulate a target corpus of Rs 10 crore by the age 50 if they follow step-up SIP route with 10% increment in SIP amount every year:
| Current Age | Expected annual return | Investment required |
| 25 yrs | 12% | Rs 25,410 |
| 26 yrs | 12% | Rs 29,398 |
| 27 yrs | 12% | Rs 34,071 |
| 28 yrs | 12% | Rs 39,560 |
| 29 yrs | 12% | Rs 46,028 |
| 30 yrs | 12% | Rs 53,673 |
| 31 yrs | 12% | Rs 62,743 |
| 32 yrs | 12% | Rs 73,548 |
| 33 yrs | 12% | Rs 86,477 |
| 34 yrs | 12% | Rs 1,02,031 |
| 35 yrs | 12% | Rs 1,20,850 |
Worth mentioning here is that you also need to create an emergency fund along with your regular investment for retirement so that your retirement corpus remains untouched in case of emergencies like job loss, hospitalisation or any pandemic, that we are witnessing now, which can create potential risk to employment.
An emergency corpus should be to the extent of your six months’ household expenses including EMIs if any. The ongoing Covid-19 pandemic has left many jobless. So it is very much essential to have an emergency corpus.
