Contrary to popular belief, the new age of smart investing has made large retirement targets easily attainable. Now you can dream big and retire from your 9 – 5 job, only to pursue your hobbies, travel the world and live your dream. The secret to such Financial Freedom is – ‘Passive Income.’ With a sound strategy and regular investments, you can easily target a sizeable net worth for retirement planning.
Take a moment to envision your retirement! You’re definitely dreaming of a great house, indulging in hobbies or traveling to faraway places possibly with your partner. It’s the ideal retirement, most individuals dream of.
But, first things first! You ought to set a retirement corpus, that’ll help you determine a sound investment strategy.
Converting Possibility into Reality – The Game of Numbers:
A Systematic Investment Plan or SIP takes the staggered approach of investing where you can contribute monthly investments to build a targeted corpus. It factors in the Rupee Cost Averaging while eliminating the market volatility as you make investments spread over a period of time. If you’re thinking ‘how to retire rich’, equities should play a major role in your portfolio to build a large retirement corpus. But setting the right investment amount can be a tricky part.
Assuming you fall in the age bracket of 30-40 years, you can start with small SIP contributions of Rs. 5,000 per month. Since equities perform better over longer durations, a steady SIP can help you accumulate a wealth that’s as high as 1.8 crores at 12% CAGR.
Time is Money:
The key to retiring rich is your investment tenure. The earlier you start, the better are your chances of fetching a high retirement corpus. Many cash-strapped investors tell themselves that they can make up for the lost time by making higher SIP contributions in the near future. But, unfortunately, that’s not the way it works. Compounding being the key that helps you generate higher returns, ‘Retirement Planning’ is something that must be targeted over time.
Let's understand this with an example:
|
|
Karan |
Kaavya |
|
Age |
40 years |
25 years |
|
Monthly SIP contribution |
Rs. 15,000/- |
Rs. 7,000/- |
|
Retirement Age |
60 years |
60 years |
|
Total Contribution |
36 lakhs |
29.40 lakhs |
|
CAGR |
12% |
12% |
|
Corpus Amount at 60 years |
1.38 crores |
3.85 crores |
The moral of the story is ‘Start early and stop robbing your future!’
Retire Rich:
You’ve now understood the importance of Retirement Planning, the Essence of Time, the Power of Compounding and Starting Early’. So imagine yourself investing a reasonable amount of Rs. 5,000 a month in SIP contributions. This can fetch you a good retirement corpus of Rs. 1.8 crores. Now comes the part of retiring rich!
Similar to the concept of a SIP that invests your money in a staggered approach, you now need to systematically withdraw your investments while strategizing your portfolio effectively. Generally speaking, with age, our risk appetite reduces.
When you’ve attained the age of 60 and happily retired, you can relax knowing that you started investing with a goal in mind – Rs. 1 Lakh a month. With a SWP, you get this fixed amount of Rs. 1 Lakh every month that helps you live your dreams. You don’t need to withdraw your funds immediately. A Systematic Withdrawal Plan or SWP helps you systematically withdraw funds from your retirement corpus while still making your money work for you.
But what about market volatility?
While at 60, you can still handle market volatility, come 80 you’ll start thinking of safety. That’s where effective strategizing of your portfolio comes into the picture. While equity funds are popular in fetching higher returns, they are still a risky asset. Compared to equity funds, Debt Funds or Balanced Funds have a degree of safety that invests your funds or part of your funds (respectively) into fixed income assets. This helps in offsetting the risk factor while allowing your retirement corpus to work for you and generate passive income.
Depending on your risk appetite, if you have a moderate risk capacity you can gradually switch your mutual fund units to an appropriate Balanced Fund. However, if you’re concerned about capital preservation and safety of your funds, you may switch to pure Debt Funds that can fetch around 7-8% per annum.
Such a strategy can help you in managing your retirement funds effectively while keeping your foot on the income accelerator with a steady inflow of Rs. 1 lakh per month.
It’s definitely wise to start at an early age as you’ve found out! So why not dream big and start small to retire in style.
If you’re unsure about your fund selection, we at 5nance are armed with experienced mutual fund advisors. Allow our expertise to help you in retiring rich. Call us on 022-67136713 or drop your queries at ask@5nance.com!
