Investment Planning for Late Beginners: Did you miss the early bus of the investment journey? Are you 40 years old and still have no corpus for retirement? Were you busy fulfilling other responsibilities and were left with no amount to invest? There may be several reasons for not investing early in your life. And because of that, you have missed many years of compound growth for your investments, but it is still not too late to build a sizeable corpus.
You may still have a fair chance of creating an Rs 5 crore retirement corpus by the time you turn 60 years old.
Through projections, know how it may be possible-
Income-savings ratio
The famous financial rule of 50:30:20 says that one should save at least 20 per cent of their income to invest.
A healthy income-savings ratio is 30 per cent.
If a person doesn’t have many responsibilities, they may also invest a higher percentage amount.
If your salary is Rs 20,000-Rs 100,000, here’s how much you may invest at 10, 20, and 30 per cent ratios.
In the table, you can see that if someone is earning Rs 50,000 a month, they may invest at least Rs 5,000.
If they invest Rs 15,000, it will be considered a good amount.
Similarly, someone earning Rs 100,000 monthly may invest in the range of Rs 10,000-Rs 30,000 or higher.
Income-savings ratio for 40 years old person
Forty years is an age when most people are at the mid-level of their careers. If they are in a white-collar job, there are chances that they may be earning well and may invest a good amount every month.
For someone who is 40 years old without a retirement corpus and aims to build a sizeable fund, it is important to invest quite a large portion of their income.
They may opt for a 30 per cent investment of their income every month.
Step up your investment
Another important aspect of investing is that your investment should also increase with your income.
Otherwise the corpus generated may fail to beat inflation.
The annual investment step up can be 5 per cent, 10 per cent or higher.
Now, suppose you are 40 years old and invest Rs 25,000 a month; this is how your investment may rise for the next 20 years (at 5 per cent and 10 per cent increases).
How to build Rs 5 crore corpus
If a 40-year-old starts a Rs 40,000 monthly investment, tops it up yearly by 5 per cent, and gets a 12 per cent annualised return on it, they may generate an over-Rs 5.10 crore corpus by 60 years of age.
Their investment in 20 years will be Rs 1,58,71,658, estimated capital gains will be Rs 3,51,43,234, and the estimated corpus will be Rs 5,10,14,892.
If the same person gets a 14 per cent annualised return on their investments, an Rs 5 crore corpus can be generated from an Rs 31,500 monthly investment.
In 20 years, the total investment will be Rs 1,24,98,931, estimated capital gains will be Rs 3,75,41,414, and the estimated corpus will be Rs 5,00,40,345.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)