Retirement at 50: Here’s how you can build your corpus goal

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Early retirement from work is desired by many but achieved by a few. The main obstacle to this bliss is imprudent investment. Missing the right age for investing is a problem for many. The right time is at the beginning of one’s career, advisors would recommend. Planning for early retirement enjoins careful planning and strict financial discipline. If you start saving from your early twenties for your retirement, you’ll be able to do it better since one has comparatively less financial responsibilities than individuals in their thirties.

“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, you could retire at just 50,” said Nilotpal Banerjee, a professional financial planner.

“For early retirement, you have to build a corpus. If you want to retire at 50, you have to save at least 10 years of extra income, as the normal working age is 60 years. This cannot be achieved by investing only in bank FD, recurring deposits, and other means of safe and traditional investment. One would need to take risks and need to take exposure to stocks or mutual funds, to get such a substantial corpus,” said Arvind Agarwal, another CFA from Kolkata.

Mutual funds

Goals like retirement corpus can be achieved with investments in mutual funds that yield higher inflation-beating returns.

But for that you need to choose a diversified portfolio. For instance, you can plan your investments in mutual funds through SIP. Experts say, one can begin a SIP with as low as Rs 500, while in their twenties.

The amount can be increased later as incomes go up. The point of saving from early years promises greater compounding benefits and helps the money grow more.

If a 25-year-old, who plans to retire at the age of 50, starts a monthly SIP of Rs 10,000, by 50 he/she would have invested Rs 30,00,000. Assuming a modest 13% return, he/she would get around Rs 2.3 crore at the age of 50.

And if the person is able to take more risks and invested in purely equity based direct growth fund then the return would be around 16%. That would give the person a comfortable corpus of around Rs 4 crore.

Public Provident Fund

Along with MF SIPs, the 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.

For example, if you deposited Rs 1.1 lakh every year in the PPF account for 25 years at a 7.1% interest rate, after the lock-in period is over, the maturity amount will be around Rs 75.6 lakh. The person has invested only Rs 27.5 lakh and gets Rs 50 lakh from interest. And it is fully exempt from taxes.

Experts say investment in PPF can also help meet an individual’s long-term financial goals.

National Pension System

Besides MF and PPF, National Pension System (NPS) is one of the best retirement options till date. Being a young investor, you can invest 75% of your monthly corpus to equity and the rest in corporate and government bonds.

This investment pattern might get you a return of 11%. If the person invests Rs 6,000 per month for a period of 25 years, it will yield about Rs 96 lakh. Out of this corpus, Rs 57 lakh will be paid at the age of 60 years.

The rest Rs 38 lakh would be used to provide annuity. At 7% annuity rate, the person would get a monthly pension of Rs 22,200 for the rest of his life.

Bottom line

These three instruments can make a retirement corpus of more than Rs 4 crore, along with a monthly pension of Rs 22,000.

Besides if you have any investment in property then it would be a cherry on the cake. “This is just an idea. The total monthly investment stands at little less than Rs 25,000. If a person invests more than this amount, then he/she would certainly get more retirement corpus,” said Banerjee.