“I’m going to work till I’m forty and then travel the world.”
Chances are you’ve caught yourself or your friend(s) voicing such thoughts at least once in the past few years. The post-retirement activity could vary – you could be planning to start a café, become a reclusive writer, or to just chill at home with your favourite books and/ or movies; but the core idea remains the same: stay in the rat race just long enough to build up a nest egg you can live off, and then quit.
The more practical-minded among you may then proceed to dismiss these fantasies as just that – fantasies that are nice to think about but won’t ever come true. However, making these dreams a reality is not that difficult. All it takes is a little planning and dedication. This mutual fund day, we’re going to show you how you can retire and start doing your own thing in just 20 years.
For this example, we’re going to be considering a 25-year old named Karan. Karan earns about Rs. 30,000 a month now and spends Rs. 20,000 on his monthly expenses – rent, food, shopping, partying, and the rest. That means he usually has an extra Rs. 10,000 which he can put aside for his goal – to retire by 45.
Assuming Karan lives till 90 – a reasonable estimate these days – he’ll need to build up enough money by the time he reaches his planned retirement age to sustain him for 45 years. Of course, this corpus he’ll build won’t be idle post-retirement – he will have to invest it in debt funds, senior citizens’ savings schemes (as and when he becomes eligible) and other such options. So, let’s assume his post-retirement returns to be around 8 per cent. Finally, we need to factor in the rise in the cost of living over time (rate of inflation). Let’s assume this to be 6 per cent.
This means Karan needs to save up a total of Rs. 2.24 crore to generate a monthly income that’ll grow in step with inflation and sustain him throughout his retirement (calculated using our retirement needs calculator). Looks like a big target, yes? But it’s quite achievable.
All Karan needs to do is to start a Systematic Investment Plan (SIP) of Rs. 10,000 a month in mutual funds. He will need to increase his SIP investments by Rs. 3,000 each year (his yearly hikes should be able to cover this). Twenty years later, assuming a 12 percent return on mutual fund investments (a reasonable estimate for equity mutual funds), Karan would have saved up Rs. 2.56 crore. That’s Rs. 32 lakhs more than his estimated target!
Fun Fact: If he were to step up his investments by Rs. 5,000 a year instead, he would have built Rs. 3.66 crore by the end of 20 years – nearly one and a half crore more than his target! You can calculate this yourself (or for your own goals) using our step-up SIP calculator.
Of course, what works for Karan won’t work for everyone – he chose the bachelor style of life and didn’t have any dependents to worry about. So, depending on your circumstances – age, planned retirement age, expenses, dependents, etc. – your target amount, and hence, the SIP amounts (starting and step-up) will vary.
But with the right planning, investment portfolio, and discipline, you should be able to reach your goal with ease. So, if you really want to retire early and do your own thing, remember – you can!
Just enlist the help of a good financial advisor and you can be on your way to a comfy retirement.
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Link for step-up sip is not working.Please fix
Hi Krishna,
Sorry to hear this. However, we cannot provide support through the blog. Could you please write to support@fundsindia with the details of the problem you’re facing? Our team will be more than happy to assist you.
Thanks!
Team FundsIndia
Apologies for the earlier confusion, Krishna. We’ve fixed the links in the blog. Please check now.
Everyone says this monthly SIP over a long period gives high returns. But how to choose the right funds that can take us there. Importantly, how to take the decission of shifting from funds in which we have invested for some time when they no longer perform well. Second, what if the market is really down when we need our money back? Won’t that situation bring down the NAV and also the value of the corpus. For example, I need 10 lakhs after ten years and start invest accordingly. What if market sees a low during that period when I will be in need of my money? Should I be looking to redeem it from a couple of years before when my returns are satisfying and then have them in a bank FD?
You can take the help of a good advisor to select the right funds for your needs. At FundsIndia, we offer all our customers, free, dedicated advisory all the way from fund selection to regular portfolio reviews. Our advisors will also let you know if and when you need to switch out of a particular fund.
To answer your second question: to prevent investors from losing money closer to their goals, we recommend gradually shifting their assets from equity to debt. This way, even if the markets fall close to the time when you need your money, most, if not all, of your money will be safe in debt instruments.
Funds India Team
A reader after reading your blog informs you about a link that does not work in YOUR blog. You should look into the issue and correct it rather than asking the reader to write a mail to YOUR support team. Why can’t you take this up with YOUR support team ? This is Funds India blog and Funds India should take care of that. If you are working in such an isolation that even for fixing a link in the blog, you are asking the reader to write a mail to YOUR support team, I can’t imagine the service you would provide to your consumers.
Hi Hariharan,
It was a case of miscommunication. As the comment merely mentioned Step-up SIP, we mistook it to mean the SIP setup link on the platform (we’ve received support requests here before). We’re sorry for the confusion.
The link has now been fixed and should be working fine.
Regards,
Team FundsIndia
Thanks for the clarification and also for rectifying the link error. It is good to see your team responding quickly even during the weekend. This is the sort of service an end consumer expects as nowadays good service is what the consumer increasingly looks for. Good Turn around
Thanks for the clarification and also for rectifying the link error. It is good to see your team responding quickly even during the weekend. This is the sort of service an end consumer expects as nowadays good service is what the consumer increasingly looks for. Good Turn around
Link for step-up sip is not working.Please fix
Hi Krishna,
Sorry to hear this. However, we cannot provide support through the blog. Could you please write to support@fundsindia with the details of the problem you’re facing? Our team will be more than happy to assist you.
Thanks!
Team FundsIndia
Apologies for the earlier confusion, Krishna. We’ve fixed the links in the blog. Please check now.
Everyone says this monthly SIP over a long period gives high returns. But how to choose the right funds that can take us there. Importantly, how to take the decission of shifting from funds in which we have invested for some time when they no longer perform well. Second, what if the market is really down when we need our money back? Won’t that situation bring down the NAV and also the value of the corpus. For example, I need 10 lakhs after ten years and start invest accordingly. What if market sees a low during that period when I will be in need of my money? Should I be looking to redeem it from a couple of years before when my returns are satisfying and then have them in a bank FD?
You can take the help of a good advisor to select the right funds for your needs. At FundsIndia, we offer all our customers, free, dedicated advisory all the way from fund selection to regular portfolio reviews. Our advisors will also let you know if and when you need to switch out of a particular fund.
To answer your second question: to prevent investors from losing money closer to their goals, we recommend gradually shifting their assets from equity to debt. This way, even if the markets fall close to the time when you need your money, most, if not all, of your money will be safe in debt instruments.
Funds India Team
A reader after reading your blog informs you about a link that does not work in YOUR blog. You should look into the issue and correct it rather than asking the reader to write a mail to YOUR support team. Why can’t you take this up with YOUR support team ? This is Funds India blog and Funds India should take care of that. If you are working in such an isolation that even for fixing a link in the blog, you are asking the reader to write a mail to YOUR support team, I can’t imagine the service you would provide to your consumers.
Hi Hariharan,
It was a case of miscommunication. As the comment merely mentioned Step-up SIP, we mistook it to mean the SIP setup link on the platform (we’ve received support requests here before). We’re sorry for the confusion.
The link has now been fixed and should be working fine.
Regards,
Team FundsIndia