They were midnight’s children, Veer and Pratap, twins born on the midnight of August 15, 1947.
MUMBAI: They were midnight’s children, Veer and Pratap, twins born on the midnight of August 15, 1947.
Veer and Pratap had turned 59 this August 15, and when India and they would turn 60 next year, they plan to retire. Both had studied well. In 1970, when they were 23, they had their own businesses and were doing well in life.
From 1970 onwards, Veer had started putting aside Rs 15,000 every year, to build a corpus for his retirement days. He realised that, being a businessmen, he wouldn’t be eligible for any sort of social security in the days to come.
And he had to ensure on his own that his retirement days were comfortable.Pratap, on the other hand, had mocked at Veer and had enjoyed his youth, not putting away anything towards his retirement. In 1980, Veer’s business had collapsed and he was not able to save anymore towards his retirement.
But he didn’t touch the corpus he had managed to accumulate. He let it grow every year.
Pratap had done well for himself, but not saved for his retirement till 1980, when his wife prevailed on him to start saving for their retirement.
So, just to stop her from nagging, Pratap had started putting aside Rs 15,000 every year. He had religiously put aside Rs 15,000 every year, till date.
In 10 years, from 1970-71 to 1979-80, Veer had invested Rs 1.5 lakh. He had earned an average return of 10% per annum and, as of now, his corpus had grown to Rs 31.34 lakh, despite the fact that he had not invested a single penny since 1980.
On the other hand, Pratap had invested Rs 3.9 lakh over the years. He also had earned an average return of 10% per annum and his corpus had grown to Rs 18.02 lakh.
Now, this is interesting. Even though Pratap had invested 2.6 times the money Veer had, Veer’s corpus was 73.9% more than Pratap’s.
The fact that Veer had started investing 10 years earlier than Pratap ensured his corpus was more than Pratap’s. This is the power of compounding.
Next year, when both of them plan to retire, assuming that they earn a return of 10% this year as well, Veer’s corpus would grow to Rs 34.47 lakh, almost 74% more than Pratap’s corpus of Rs 19.82 lakh.
If Veer had continued investing the same amount over the years and not stopped investing from 1980 onwards, he would have ended up investing Rs 5,40,000 over the years. At an average return of 10% per year, it would have fetched him Rs 49.36 lakh now.
The point is, the sooner you start building your retirement corpus, the more sense it makes, as it allows more time for the money to compound.
Both Veer and Pratap plan to live from the return their accumulated corpus generates when they retire next year.
In Veer’s case, if the corpus generates a return of 10% per annum, the monthly income would be around Rs 28,729, whereas for Pratap, the monthly income will be around Rs 16,514 only.
It’s very clear from this as to who would be able to lead a more comfortable life in the days to come.
(The example is hypothetical)
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