Greeting To Our Readers!
Early Retirement, simply a life full of pleasure and leisure, that too before the actual retirement age, is what every individual desire today.
People generally retire at the age of 60 but if they desire to retire early, that probably means they are planning to retire at 50. To retire early what an individual needs to do is achieve a level of financial independence at the age of 50 so that he can be out of the rat race that many people struggle to remain a part of.
The point of discussion is, how to achieve this level of financial independence at the age of 50?
Financial Experts Advice……….
Financial experts say that an early retirement that too being rich only calls for proper planning of finances, saving, and investment from an individual. To retire early, individuals must calculate the value of the corpus, they must retire with, to lead a happy retired life forward.
To do the retirement money calculation they need to consider certain factors like, How long will you live? How long will your spouse need support? What will be the inflation? What will be the returns from debt investments? What will be the returns from equity investments? How much will your basic expenses be? How much will be your lifestyle-related discretionary expenses? Will you need additional health care support? And so so…..!
Here the question arises, can anyone calculate and create their early retirement corpus, in absence of the above-mentioned factors. So, the answer to the question is YES!
In the absence of the above-mentioned data points, the only factor that will help is a rough target retirement corpus. Here the individual needs to understand that rough data can help but the accurate retirement money can be calculated considering the mentioned factors only.
Mathematics of Early Retirement……….
As a thumb rule, your retirement corpus should be at least 200 times your monthly income when you retire at eth age of 60. However, for retirement at 50, building a kitty of at least 250 times your monthly income is required.
Let us consider an example. If you are currently earning about Rs 1 lakh per month your retirement fund should be
Rs. 1 lakh x 250 = Rs. 250 lakhs = Rs. 2.5 Crores
The Target Retirement Money……….
The person taken into consideration here is 30 years old who desires to retire at the age of 50. The person has 20 years in hand to save for retirement.
He relies on the target retirement corpus to calculate how much will the retirement cost. Let us suppose a few scenarios for him like Rs 3 crore, Rs 4 crore, Rs 5 crore, Rs 7 crore, and Rs 10 crore.
Now we have a corpus to create in crore and years of investment as long-term, so the best option to invest your money is in equity. At least a major portion should be in equities. Equity can be expected to deliver 10-12% average returns in the long run.
What should be the equity: debt ratio of your portfolio? Considering the corpus to be created we can assume a portfolio, and term of investment we suggest you create a portfolio with a 70% equity: 30% debt ratio.
Now we have certain questions for you to answer-
1. How much to invest monthly for Rs 3 crore retirement in 20 years?
A. For a retirement corpus of Rs 3 crore in 20 years, you need to invest in a SIP of Rs 36-41,000 per month if expecting 8-11% returns on your 70:30 equity-debt portfolio.
2. How much to invest monthly for Rs 4 crore retirement in 20 years?
A. For a retirement corpus of Rs 4 crore in 20 years, you need to invest in a SIP of Rs 48-54,000 per month if earning 8-11% returns on your 70:30 equity-debt portfolio.
3. For a retirement corpus of Rs 4 crore in 20 years, you need to invest in a SIP of Rs 48-54,000 per month if earning 8-11% returns on your 70:30 equity-debt portfolio.
A. For a retirement corpus of Rs 5 crore in 20 years, you need to invest in a SIP of Rs 60-68,000 per month if earning 8-11% returns on your 70:30 equity-debt portfolio.
4. For a retirement corpus of Rs 4 crore in 20 years, you need to invest in a SIP of Rs 48-54,000 per month if earning 8-11% returns on your 70:30 equity-debt portfolio.
A. For a retirement corpus of Rs 7 crore in 20 years, you need to invest in a SIP of Rs 84-95,000 per month if earning 8-10.8% returns on your 70:30 equity-debt portfolio.
That’s how much you need to invest every month to retire at 50 when you begin investing at the age of 30!
Plan For Other Goals Along With………
Individuals have many other important goals with retirement planning, for which they invest. In such a scenario they may find it difficult to invest the required money monthly for retirement as calculated above. So, what to do in such scenarios?
Well, step up SIP is the only efficient solution to this problem!
Step-up SIP means start investing small and keep increasing your investment with each passing year. Understand the situation with an example.
Suppose your investment delivers 10% average returns and you have 20 years time horizon. For regular non-increasing SIP, you need to invest Rs 66-67,000 per month for 20 years to reach Rs 5 crore target
But with step-up SIP you only need to start your investment with Rs 47-48,000 per month with an annual increase in SIP amount by 5% with each passing year for long 20 years to reach a target of Rs 5 crore. If you can notice, the required amount to invest monthly got reduced by Rs 20,000. Amazing!
Let Us Sum Up!
So, if you are young and have not yet started investing for retirement, you should do it as soon as you can. It will help you accumulate a larger corpus that will eventually help you retire early that too being rich!
Keep reading our article and stay updated with the latest news about Mutual Funds!
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).