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How To Retire 7 Years Early & Accumulate 10 Crores On Retirement
How To Retire 7 Years Early & Accumulate 10 Crores On Retirement
retirement, the question to ask yourself is Are you saving enough financially
to be able to retire early?
#2: The earlier you start investing for retirement, the earlier you
can retire
Sounds pretty simple, right? But did you realize how much each year of delay
could affect you? The more you delay, the more you would need to invest each
month to reach the targeted corpus.
For instance, (refer table below) to reach the targeted corpus of Rs 7 crore on
retirement, you need to invest Rs 11,000 each month into equity funds if you
start at 25 as against Rs 71,000 per month if you start at 40.
Investment Required to Reach 7 Crore Corpus
Assuming you invest in equity mutual funds @12% p.a. average return and bank Recurring
Deposit (RD) @ 6.5% p.a. post-tax return.
Starting Age
25
Rs 11,000
Rs 1.76 Crore
Rs 7.07 Crore
30
Rs 20,500
Rs 2.26 Crore
Rs 7.16 Crore
40
Rs 71,000
Rs 3.48 Crore
Rs 7.02 Crore
50
Rs 3.05 Lakh
Rs 5.1 Crore
Rs 7.01 Crore
Use this calculator for your current scenario (ignore the symbol).
Unless you are sure of saving a few lakh every month, its a good idea to start
early.
You might be beginning to think that early retirement seems impossible. But
were here to help you. All you need to do is follow the 5 simple rules below:
Rule #1: Save First. Spend Later
This rule is pure common sense - but most uncommon among people. Save at
least 30% of your take-home salary and only then start spending your money.
To make it easier, set up an automated monthly investment, say, on the 7th of
every month, so that 30% of your income goes into an investment product
(mutual funds, stocks, bonds, deposits etc.)
Monthly
Tradition
Traditional
Age
Investment
Savings Pre-Tax
Savings Post-Tax
25
Rs 24,000
Rs 3.64 Crore
Rs 2.29 Crore
Rs 10.04 Crore
30
Rs 49,000
Rs 4.51 Crore
Rs 3.12 Crore
Rs 10.01 Crore
40
Rs 2,30,000
Rs 6.82 Crore
Rs 5.64 Crore
Rs 10.18 Crore
Use this calculator for your current scenario (ignore the symbol). Equity mutual funds
@14% returns annualized. Traditional savings @9% pre-tax and 6.5% post-tax.
and the opportunity cost of not being able to invest that EMI amount into a
high yielding investment.
So reduce debt and cut down on unnecessary spending to save as much as
possible.
Rule #4: Invest Smartly In Various Assets
Most Indians prefer to invest their savings into real estate or gold. And if they
earn more savings, probably back again into second or third house.
While real estate and gold are indeed good assets to have in your portfolio,
getting all your money locked into a single asset class is very risky. You should
diversify and invest in other assets as well.
Equity, debt, bank deposits, bonds, corporate deposits are some of the
investment opportunities you should explore.
Remember: The riskier the investment is, the higher the return it could
potentially give. In the long run, equities have outperformed real estate and
bank deposit in terms of returns. Historically, equities have also given the
highest returns as against fixed deposit, which most of the times have even
failed to beat inflation.
Rule #5: Be Prepared For Unforeseen Events
One of the biggest mistake people all around the world make is considering
insurance as an investment. However, insurance is NOT an investment product
and only an instrument for mitigating risk.
While we make plans for 10 crore retirement corpus, have you thought of
what happens if something goes wrong in your plan? What if the sole bread
owner of the family passes away? The family still needs money to survive, but
there is no income to supplement it. Thats why you should be prepared for
such unforeseen events and take insurance (health and life).
We recommend you plain-vanilla term-insurance plans (which only provide life
cover) as against money-back plans (life cover plus investment) which usually
give you extremely low returns. You are better off investing the latter money in
other assets to generate higher returns.
While Rs 10 crore is a good amount to retire with, you can retire with much
less money. You could even retire with 1 crore of rupees or less, provided you
are willing to make necessary changes to your lifestyle.
The more you save and the less you spend, your expenditure goes down and
your savings go up. And if you adopt a frugal lifestyle, the faster you move
towards worry-free retirement (even while you are just 30 years old).
Its a lifestyle choice you have to make. Retire @53 yrs with several crore of
rupees to maintain your lifestyle or be frugal and retire even early (say when
you are 40) and adopt a simple lifestyle.
Assuming you are 30-year old, you can retire @40 yrs by investing Rs
50,000 every month. If you invest into equity mutual funds (which give you
an annualized return of 16%), you can get Rs 1.48 crore on retirement. Now, if you
invest this 1.48 crore of rupees on a safe instrument like bank FD, you will get Rs 1.35
lakh every month as interest (same purchasing power as roughly Rs 60,000 today).
Quick Recap
Start investing early
Invest at least 30% of your earnings every month without fail
Invest in high-yielding assets such as equity mutual funds
Diversify your portfolio- dont put all your eggs in one basket
While calculating investment returns, take into account the tax
implications (bank Fixed Deposits are taxable but long-term equity
mutual funds are tax free- so net return for both would be very
different)
Take into account the time value of money. Rs 1 lakh in 2014 will be
worth only Rs 9,937.73 in the year 2044 (Inflation @ 8%p.a. )
Increase your investments by at least 10-15% every year
Avoid debt- as much as possible
Adopt a frugal lifestyle to retire early
Automate your investments - to regularize the process of investing and
to maintain investment discipline under different market conditions.
Mutual fund investments are subject to market risks. Please read scheme related documents carefully before
investing. Past performance is not an indicator of future performance.