SIP your way to retirement

The best time to start planning your retirement is when you start working, which means in your ‘20s. But when you are in your 20s, the word retirement seems to be too far away. On the flip side, it is also when you have fewer obligations. By saving even a little you would be able to create great wealth as compared to if you delay starting saving. In your ‘30s you have to accommodate expenses towards family such as monthly household budgets, children’s school fees or paying off Equated Monthly Instalments (EMIs) for your home or cal loan.

The more you delay your investments, you will lose the power of compounding which helps in creating wealth. If not more, start saving at least 10% right when you are in your 20s to have a much comfortable retirement when you are in your 60s. If wait till you turn 30, then you need to save 15% to 20 % of your total income and the same will keep on rising for any further delay.

Generally, a person starts working from say, 24 or 25, years and retires at around 60 years of age. But these days many people chose to retire early and follow their passion. That can be possible only if they have a good amount of money to take care of their post retirement life. Today, we have a much better life expectancy along with better medical facilities that makes it necessary to plan for those 30 to 35 years wherein you would not be working. And if you don’t want to work till 60 years, then retirement planning becomes even more critical as you will have to depend on your investments for many more years.

Let’s say you want to generate a corpus of Rs 1.5 crore at the end of 20 years. Do you know what is the amount you need to save to create this corpus? Let us assume that you will start a Systematic Investment Plan (SIP) today and it gives you an annualised return of 15 per cent. The amount you need to invest every month in the SIP would be Rs 10,000.

Are returns sustainable?

The stock market has consistently given a return of around 15% and more, especially in the last 20 years and so. Your equity investment will always work best in the long run. Retail investors should invest in equity via SIPs, that is, take the mutual funds route to avoid market volatility and create long term wealth.

What if you start investing late?

If you invest Rs 10,000 via monthly SIP for 30 years (cumulative amount of Rs 36 lakh), then the amount of money generated would be Rs 7 crore, assuming 15% returns. As against this, investing Rs 10,000 for 10 years (cumulative amount of Rs 12 lakh) would generate a corpus of Rs 27.86 lakh. This means investing an additional Rs 24 lakh over 20 years would have generated Rs 6.32 crore.

The writer is chief gardener, Money Plant Consultancy