Planning to retire at 45 with a corpus of Rs 5 crore? Here's a way

Though the template retirement age in 60, more and more people are planning to retire early, some even at 45. A lot of people who start early Mainly those persons who start working early also want to retire early. But for retirement at such an early age, you would need a sizeable corpus that would allow you to continue your lifestyle without any need for salary income. Let us Rs 5 crore is a decent amount if anyone wishes to retire at 45 from working life.

We also assume that the person should have started his/her career at 23/24 years of age. It means he/she has 21/22 years to build the corpus of Rs 5 crore. The target is tough to achieve, as interest rates on all debt instruments have come down well below 10%. The only saviour is the equity market and equity-linked mutual funds.

To achieve the objective, a person has to invest in different equity-based instruments like risk laden equity-based mutual funds, equity market and in national pension system or NPS, said experts.

“The earlier you begin, the longer the time you get to invest. For those who plan to retire early, starting early will give them a longer tenure to generate a larger corpus along with the benefits of compounding. If you can achieve a large enough corpus of Rs 5 crore, you could retire at just 45, but for that you have to invest lots of money,” said Nilotpal Banerjee, a professional financial planner.

Mutual funds

Mutual fund is the most important instrument to make a corpus of Rs 5 crore at the age of 45. The person has to invest in high-risk equity based mutual funds. These funds generally yield 13% to 16% return over a specific time period, said Banerjee.

The person has to invest at least Rs 20,000 per month through SIP method in open ended equity-based mutual fund for 22 years. If it yields 13% return, after 22 years of continuous investment it will generate at least Rs 3.1 crore.

NPS

Besides mutual fund, the person should invest in National Pension System or NPS for a secure yet safe retirement life. Experts suggest the person has to invest at least Rs 15,000 per month for the 22 years.

Being a young investor, the person can invest 75% of his/her monthly corpus to equity and the rest in corporate and government bonds. This bag can yield Rs 1.7 crore at 11% yearly return rate, of which Rs 65 lakh would be kept aside for the monthly pension. And the rest Rs 1.05 crore would be paid on the very first day of retirement.

PPF

Public Provident Fund (PPF) is another option to consider. Even though PPF comes with an initial lock-in period of 15 years, it is fully guaranteed by the Central government that offers long-term returns at a 7.1% interest rate, compounded annually.

Depositors can also extend their investments indefinitely in a block of 5 years, after the expiry of the initial 15-year lock-in period.

If a person deposited Rs 1.5 lakh every year in the PPF account for 23 years at 7.1% interest rate, after the lock-in period is over, the maturity amount will be around Rs 87 lakh. The person has invested only Rs 34 lakh and but would get Rs 53 lakh as interest. It is fully exempt from taxes.

PPF can also help meet an individual’s long-term financial goals, said Arvind Agarwal, a tax expert.

Bottom line

With these three instruments the person can get Rs 3.1 crore, Rs 1.05 crore and Rs 87 lakh, i.e. Rs 5.02 crore at the time of his retirement at 45 years. Besides he can have a monthly pension of approximately Rs 25,000 from NPS.

“To get this corpus at the age of 45, the person has to invest at least Rs 48,000-Rs 50,000 per month. That means the salary of the person should be at least Rs 75,000/pm, otherwise it is really tough to achieve the corpus. If the person reschedules his/her retirement age at 50, it would be much easier to achieve,” said Agarwal.

“If the person does not have any loan to repay does not take any loan, it would be possible. But if he/she is saddled with any home loan or personal loan or car loan, then the monthly salary of the person has to be consistently more than Rs 1 lakh. This is quite uncommon for a fresher, except for some special cases. So Rs 5 crore at the age of 45 is something tough to achieve,” said Banerjee.