When planning for retirement, the key question that comes to mind is how much you need to save. This needs careful consideration of various factors such as your current income, risk tolerance, and the crucial element of time. The amount of time you have before retirement plays a pivotal role in shaping your investment strategy. Starting early in your career, perhaps in your 20s, provides you with the advantage of long-term growth and the ability to take on higher-risk investments. Take examples of stocks and mutual funds, which typically offer higher returns over time.
Conversely, if you’re beginning to plan for retirement later, such as in your 40s, a more cautious approach is necessary. You’ll need to focus on safer, more stable investments to protect your capital and ensure steady returns, minimizing exposure to market volatility as retirement approaches.
Here’s how much you should invest to save to have Rs 1 crore in 30 years?
When you aim for a retirement corpus of Rs 1 crore, it needs right investment tools based on their historical returns. In this article, we explore three popular investment options — Mutual Funds, the National Pension System (NPS), and Small Savings Schemes — and calculate how much you need to invest each month to reach your retirement goal. Each tool offers distinct benefits and returns, so understanding their impact on your savings plan is crucial.
Investing in mutual funds:
To achieve a retirement corpus of Rs 1 crore in 30 years with mutual funds, which have historically delivered an average return of 12% per annum, you need to start a Systematic Investment Plan (SIP). Here’s how your investment will pan out:
Monthly investment: Rs 3,000
Expected annual return: 12%
Total investment over 30 years: Rs 10,80,000
Total corpus at maturity: Rs 1,05,89,741
Total interest earned: Rs 95,09,741
By investing Rs 3,000 every month in a mutual fund scheme yielding 12% returns, you will accumulate a corpus exceeding Rs 1 crore, allowing you to comfortably reach your retirement goal.
Investing in National Pension System (NPS):
For those opting for the National Pension System, which has delivered around 10% returns annually, the investment strategy changes slightly. Here’s how much you need to save:
Monthly investment: Rs 5,000
Expected annual return: 10%
Total investment over 30 years: Rs 18,00,000
Total corpus at maturity: Rs 1,13,02,440
Total interest earned: Rs 95,02,440
Note that 40% of this corpus, or approximately Rs 45,20,976, will need to be allocated to an annuity scheme to provide a pension post-retirement. The remaining amount will be available for additional needs.
Also read: NPS: Starting at 50? How much should you invest per month to get a Rs 50,000 monthly pension at 65?
Investing in Small Savings Schemes:
Small savings schemes, offering an 8% annual return, require a different investment approach to reach the Rs 1 crore goal:
Monthly investment: Rs 7,000
Expected annual return: 8%
Total investment over 30 years: Rs 25,20,000
Total corpus at maturity: Rs 1,05,02,066
Total interest earned: Rs 79,82,066
By investing Rs 7,000 per month in a small savings scheme with an 8% return, you will achieve a corpus of over Rs 1 crore, making it a viable option for conservative investors.
Summing up:
To reach a retirement corpus of Rs 1 crore in 30 years, your investment strategy will vary based on the tool you choose. Mutual funds require a monthly SIP of Rs 3,000 with expected returns of 12%, while the NPS needs a monthly contribution of Rs 5,000 at 10% returns, with a portion of the corpus used for annuity. Small savings schemes necessitate a higher monthly investment of Rs 7,000 at an 8% return.