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How to Build a Retirement Corpus of 2 Crore?

IndianMoney.com Research Team | Posted On Wednesday, November 20,2019, 04:12 PM

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How to Build a Retirement Corpus of 2 Crore?

 

 

With the right investment tool, you can mobilize your savings and create a large corpus for a financially independent future. While many believe retirement to be the end of their service period, for many it is the starting of a new life. Thus, when you are entering a new phase of your life, you need a sufficiently big corpus to live a stress-free life post-retirement.

The bigger your retirement corpus the more income you can generate. So the main question is how big retirement corpus you need to lead a financially stable life post-retirement? We will try to understand this concept in this article.

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How to Build a Retirement Corpus of 2 Crore?

To support your current lifestyle after retirement you need to ensure that you retire with sufficient retirement kitty. A good corpus will help you earn even after you retire. However, the main task is to build a considerable sum to support your retirement income.

To build a corpus you need to consider the following points:

  • Home management bills: utility bills, food, and maintenance, etc. will amount to a total of 4.5 lakh per annum
  • Vacation: money required for vacation amount to a total of 1 lakh per year
  • Health care: the health care cost post-retirement is quite high and can range from anywhere between 1 lakh to 1.5 lakh
  • Income tax payment: money to be paid in the form of income taxes is Rs. 1.5 lakh
  • Emergency: money required to handle emergencies: 1.5 lakh
  • Inflation-adjusted: money that can be added back to the retirement fund to negate the effect of inflation is again 1.5 Lakh.

You can create a break-up of your total expenditures and quantify them as per your lifestyle. So it can be understood that the total annual money requirement post-requirement may range from 10 to 11 lakhs per annum.

See Also: Best Investment Plan For 3 years

Types of Investment Options to Build a Retirement Corpus:

SIP:

SIP is one of the best investment tools to create a corpus by remaining invested in the long term. However, the big question remains i.e. how to build a nest of eggs by investing a minimum amount. Experts believe that an SIP has the potential to convert a monthly investment of 15,000 to a corpus of 10 crores in 30 years provided the sum invested compounds at a rate of 15% each year. This may seem to be an overestimated assumption.

However, you can comfortably create a corpus of 2 crores if you remain invested for 30 years. However, you must consider investing Rs. 10,000 per month along with annual returns of 15%. Since this is a long-term savings plan you can automate your account to remain invested for a long period.

Equity Mutual Funds:

Equity investment carries a high level of risk due to market fluctuation and volatility. Though these investments are suited for investors with moderate and aggressive risk appetite, equity is known to give higher returns in the long-run. This is because when you remain invested for a long time the market fluctuation even out and inflation is adjusted.

Equity investment can prove beneficial for achieving a long-term goal like retirement. While the equity allocation of moderate investors remains below the 53% mark, the asset allocation of aggressive investors has a higher allocation of stocks. If you are moderate investors can easily achieve a retirement sum of 2 crores within a given term.

See Also: A Five-Minute Guide to the Systematic Investment Plan

Government-Backed Schemes:

Most of the Indian investors opt for government-backed schemes to create their retirement savings. However, working professionals get the benefit of EPF where the employee can mandatorily contribute 12% of their basic salaries and allowance to their EPF scheme. EPF provides an interest close to 8.6% on deposits.

Other government-backed schemes that work as an efficient retirement planning tool are PPF and NPS. The upper limit of PPF is Rs. 1.5 Lakh per year with a lock-in of 15 years. At present PPF investments are offering an interest rate of 8.7% which makes it an attractive option to grow your money. NPS investments have no upper limit, and it meets the priority of an average Indian investor to build a sufficiently big retirement corpus.

A right mix of government-backed schemes can help you create a large retirement corpus. With a monthly PPF contribution of 12500 for 30 years, you can achieve a retirement fund of 1.83 lakhs. Now say you want to achieve this goal within 25 years, and then you need to partially invest funds in PPF and partially in NPS.

See Also: Basics of Financial Planning

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