Sanjay is a senior business analyst in an IT company. His salary of Rs 12 lakh per year was enough to comfortably provide for his wife and children. He was happy since he thought that his life was pretty set. But one day, he realised he hadn’t started saving for his retirement. Being financially savvy, he realised it was a mistake to overlook that stage of life. That’s because he was aware he wouldn’t get a monthly salary in his retirement years. To cover his tracks, he set out to tackle this problem immediately. This is what he did:

Not many people plan for retirement

In India, it is not surprising to find many people in their mid-40s or even early 50s who are yet to begin their retirement planning. Many other goals such as building a house, financing a child’s education or wedding take priority over retirement planning. And while these goals are important, it is necessary to remember that retirement planning is equally important. Good financial planning means that you are able to meet all your goals comfortably at the right time.

Pension plans aren’t enough

On the other hand, people depend solely on pension plans or provident funds to finance their retirement. These avenues offer moderate returns of around 7-8% per annum which may not be enough to create a healthy retirement corpus. Further, the impact of inflation could eat up your savings in future, leaving you with very little purchasing power. In order to create a sufficient corpus, it is necessary to invest in equity.

Rise in expenses due to inflation

Imagine your monthly expenses amount to be around Rs 50,000 every month. Assuming a conservative value of 5% inflation, your expenses would rise up as high as Rs 2.15 lakh in 30 years’ time. In order to finance these expenses for 30 years, you would need a corpus of at least Rs 7.5 crore for your retirement. This can seem like a gigantic sum. However, remember that even the Everest can be scaled. All you need to do is take one step at a time.

SIP: Your Retirement planning Partner

In order to start retirement planning, you need to first find out how much you need to save for your sunset years. You can use an online calculator to find out how much you need based on your expenses.

Investing through Systematic Investment Plan (SIP) in equity mutual funds is a great way to create your retirement corpus. All you need to do is invest a specific amount of money in the fund on a regular basis. This way, you wouldn’t need to worry about the rise or fall in the value of the fund. In the long term, you can earn much higher returns through rupee cost averaging.

Here is an example of how an investor can earn steady returns through SIP. Let’s take Sanjay’s example.

He starts to invest Rs 5,000 per month in an equity mutual fund through SIP.

Expecting an average return of 12% per annum, in 30 years time, he would earn a corpus of Rs 3.5 crore.

Now, this may not be enough to finance his retirement needs.

But what if he increased his investment amount on a regular basis?

Since Sanjay is taking a course on management techniques, he expects his salary to increase next year. This mean, he can increase his contribution towards the SIP.

Now, if Sanjay increases his SIP contribution by 11% each year, he could hope to earn as much as Rs 10 crore by the time he retires^[1].

SIP helps to accumulate wealth for retirement

Conclusion

Retirement is an important phase in life. Some call it the second childhood. But in order to make the best during this time, you need to be financially secure. And investing in SIPs can help you enjoy a peaceful and happy retirement.

Related Posts:

• Senior Citizen and Retirement, Income Tax, Form 15H,Will
• Senior Citizen where to invest Retirement Money