At the age of 40, building a corpus of Rs 1 crore by 60 may appear to be a challenge, but with proper planning and self-discipline, it is certainly possible.
Since it is a long-term objective, a certain risk is not only acceptable but even preferable. But one needs to choose the investment vehicles that offer a balance of stability and growth.
Large-cap mutual funds or low-expense-ratio index funds following indices like Nifty 50 or Sensex are appropriate. They are moderately stable, offer decent returns, and are suitable for disciplined long-term investment.
SIP Calculator
“If you invest monthly through a SIP and the markets bestow an average return of about 15% per year, you would have to invest approximately Rs 6,300 to Rs 6,600 per month for the next 20 years. Historically, Indian equity markets have provided nearly 15% CAGR irrespective of economic phases, global trends, and market movements, and it is possible to take this as a reasonable benchmark for long-term planning,” said Sachin Jain, Managing Partner, Scripbox.
“But that is only half the math. The actual task is to be able to invest this money every single month without fail or withdrawal. At the age of 40, one already has a lot of financial responsibilities, home loans, education costs, rising lifestyle costs, and family obligations. It is difficult to make space in the budget to invest, and even if a corpus does start to form, the temptation to withdraw money from it for immediate needs is high,” Sachin Jain added.
Step-Up SIP: The Smarter Way to Beat Inflation and Save Big
Another aspect that should be looked at is inflation. Over the next two decades, the cost of living is going to increase appreciably. With a moderate rate of inflation of 6% per annum, what is costing you Rs 1 lakh now might cost you over Rs 3.2 lakh when you retire.
This means that although Rs 1 crore may appear to be a gargantuan target amount now, 20 years down the line, its buying power will be much, much lower. Your needs at the time of your retirement being higher, or if you want to enjoy a more expensive lifestyle, a Rs 1 crore corpus may turn out to be insufficient, as per Sachin Jain.
“And when the return assumption drops to below 15%, the SIP amount needed goes sky-high. At a 12% return, for example, your monthly SIP increases to nearly Rs 9,000 to reach the same Rs 1 crore. And if you are planning to save for a larger amount that is inflation-adjusted, say Rs 3 crore, you will have to invest Rs 25,000 to Rs 27,000 per month, which again will be out of reach for most families,” Sachin Jain commented.
“One of the better choices to balance between affordability and long-term commitment is to choose a step-up SIP. Here, you begin small, perhaps with Rs 5,500 a month, and thereafter raise your SIP amount by 10% annually. In the second year, you’d invest Rs 6,050, in the third year Rs 6,655, and so on,” Sachin Jain stated.
This is better in line with growing income levels over the years and reduces the burden in the early years when other expenses are also likely to be higher. And it gives you financial discipline, forcing you to continue and build your investments over time.
Conclusion
Lastly, getting a Rs 1 crore retirement corpus in 20 years is achievable, but it requires more than choosing the correct amount. It requires discipline, penny-pinching planning, realistic assumptions, and regular investing. Whether you begin with Rs 6,600 or begin with less with a step-up strategy, the only thing is to begin and then be regular, come what may.