Retirement brings with it a mix of anxiety and relief. The anxiety could be due to the absence of a profession and a regular stream of income. The relief is because of the final breaking away from many of life's responsibilities and living for oneself. Though finances are a concern, most people look at retirement as a time to relax. What about you? Are you concerned about your finances or are you waiting for retirement?
In a survey conducted by a well-known financial institution, India ranks top in the Retirement Readiness Index with a score of 7.6 while the Global average score is 5.9. So, though Indians are ready for retirement, can they retire rich?
Who doesn't like the sound of the word 'rich'? How can we retire rich?
In theory, retiring rich is very easy. Here are some easy steps which, when followed, ensure that you have a substantial disposable corpus at retirement.
Ever heard the saying 'the early bird catches the worm'? The benefits of being early in retirement planning are immense and not to be taken lightly. If you start early, you can accumulate a hefty sum by the time you retire, even if your monthly contributions towards your retirement fund are small. The longer you remain invested, the higher your compounded growth – essentially, the returns earned on past returns. This compounding miracle yields great results in the long term. See the numbers yourself.
|5||Rs. 10,000||10%||Rs. 7.8 lakh|
|10||Rs. 10,000||10%||Rs. 20.7 lakh|
|15||Rs. 10,000||10%||Rs. 41.8 lakh|
|20||Rs. 10,000||10%||Rs. 76.6 lakh|
|25||Rs. 10,000||10%||Rs. 1.3 crore|
|30||Rs. 10,000||10%||Rs. 2.3 crore|
If you invest Rs. 10,000 a month for 10 years with an expected ROI of 10%, your corpus is just Rs. 20.7 lakh. But if you double the tenure to 20 years, your corpus grows more than three-fold. However, triple the tenure to 30 years and your corpus grows over ten-fold. This is the power of compounding.
But what if you are late in your investments? Is the opportunity lost? Can't you retire rich?
Actually, you can, though the power of compounded growth would be limited for you.
When you start late, you lose the benefit of time. Therefore, you must make up for the lost time by investing higher amounts each year, or by taking higher risks. Let's say your retirement corpus requirement is Rs. 2 crore, but you have limited time left to create this corpus.
Here's how you'll need to invest if your returns expectations are a conservative 10%.
|In A 10-Year Frame|
|5||Rs. 1 lakh||10%||Rs. 78.1 lakh|
|10||Rs. 1 lakh||10%||Rs. 2.1 crore|
|In A 15-Year Frame|
|5||Rs. 50,000||10%||Rs. 39 lakh|
|10||Rs. 50,000||10%||Rs. 1 crore|
|15||Rs. 50,000||10%||Rs. 2.1 crore|
If you're unable to invest a higher amount, your other option is to take higher risks, which could provide you higher returns in the long term.
|Investing For Higher Returns|
|5||Rs. 30,000||15%||Rs. 26.9 lakh|
|10||Rs. 30,000||15%||Rs. 83.6 lakh|
|15||Rs. 30,000||15%||Rs. 2 crore|
So, you would have to invest higher amounts if you start late.
Choose Your Investment Instrument
There are numerous investment instruments available in the market which you can choose for retirement planning. However, you should be careful about the inherent risks and returns of each instrument before you choose one. Here are some popular instruments and their features:
- PPF – a stable avenue which promises guaranteed returns, the Public Provident Fund is popular among many. PPF promises a current interest rate of 7.8% and both investments and returns are tax-free.
- Mutual funds: Perhaps the best, most convenient way to create a retirement corpus. You can pick a mutual fund based on your investment capacity and risk appetite. If you're investing for the long term, it would be best to invest in an equity mutual funds where past long-term returns have been in the range of 10-12% per annum.
- National Pension Scheme: Any Indian between the age of 18 and 60 can open an NPS account and contribute a part of their income towards a retirement fund. The contributions are invested in government securities, equity markets, and corporate debt.
A Word Of Caution
Investing in any of these instruments would yield a good corpus for your retirement. However, if you want to remain rich even after retirement, there are a few actionable decisions which you should make. These include the following.
- Stay invested. Just because you have retired, don't encash the entire accumulated corpus. Redeem the amount you require and keep the corpus invested. You can earn further returns which would maximize your wealth.
- Ensure that you have a passive source of income. Buy a property and rent it out, invest in a scheme (like Senior Citizen Saving Scheme, post office Monthly Income Scheme, etc.) which gives regular income payouts or generate an income from a type of business. Try having a source of passive income to fall back on in case of a financial emergency.
- Keep planning and setting goals. You might have achieved your financial goals by retirement. But even after retirement, keep making new plans to manage your money carefully to get the best possible returns in retirement.
Retiring rich is not difficult if you know how to. Just be disciplined with your investments, think of the long term, and keep investing.
(The author is the CEO of BankBazaar. Views expressed in the article are personal.)