Imagine retiring at the age of 45, giving you enough time to do things you truly wish to do beyond the grind of everyday life. You'll be happy to know, it is possible provided you work towards it. The sooner you start financial planning, the earlier you can retire. Regardless of whether you are in your 20s or your 30s, you should start saving today. The more you delay, the tougher it'll become to retire early.
But how much corpus will you need at the time of retirement? There are multiple factors that'll affect the math to find the required corpus, such as the amount of regular monthly expenditure, inflated value till the start of retirement, one-time expenditures such as holidays, gifts, replacement of a car, life expectancy, inflation during retirement and returns expected on investment during retirement.
Once these values are determined, one can arrive at the corpus needed at the time of retirement. Working out numbers may baffle you. Therefore, sometimes, one may only estimate a range rather than an absolute number.
If you need Rs 1 lakh every month then your corpus should be 100,000 X12X40 or Rs 4.8 crore. One can argue inflation hasn't been accounted for, but the the return the corpus will generate has also not been measured. So, arrive at your corpus depending on your lifestyle expenses. After arriving at the corpus, work backwards to calculate the amount you need to save every month. Here we have worked out the calculations based on the corpus of Rs 5 crore.
For example, if you are a 25-year-old aiming a corpus of Rs 5 crore at 45, you would need to save Rs 50,543 per month for the next 20 years, assuming the rate of return is 12 per cent. If you are 30, you need to save Rs 1,00,084 every month. However, if you missed the bus of starting early and are now 35 but still want to save Rs 5 crore for retirement at 45 years, then you need to save Rs 2,17,355 lakh each month in the next 10 years.
But if you think this amount is high then there is another way to achieve the corpus. If you are 25 then you can start by investing Rs 26,838 every month as SIP and increase this amount every year by 10 per cent for the next 20 years to build the corpus of Rs 5 crore. Similarly, if you are at 30 then you can invest Rs 60,425 every month for the next 15 years. The catch lies in increasing the percentage every year to lower the SIP amount. The higher the percentage increase in SIP, the lower could be your SIP amount.
Another golden rule is if you withdraw 4% every year your retirement corpus can last at least 30 years. For example, if you have a corpus of Rs 5 crore and you withdraw Rs 20 lakh or 4 per cent every year then your portfolio will last till you are 75 years of age. Moreover, it is advisable to invest in large cap mutual funds as over long-term period equities tend to give a higher return than any other asset class.
Hence, retiring early is possible but for that, you need to save aggressively from the very start. And this is the reason why we don’t find many who have retired in their 40s. All we see around are people harbouring the wish to retire at 45. In the end, it's always advisable to consult your financial advisor as they can offer you a holistic picture given you may have other liabilities such as a child's education while building the retirement corpus.
Also read: How to build a Rs 5 crore corpus and plan your retirement
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