With a monthly expenditure of ₹ 50 thousand, you need a retirement fund of ₹ 12 crore at the age of 60, know what should be your bank balance and SIP at the age of 30, 40 and 50.

If your current monthly household expenditure is ₹50,000 and you are 30 years old today, a retirement goal of ₹12 crore may seem huge at first glance. But inflation is the most silent factor in financial planning which gradually reduces the purchasing power of money in the future. If we assume a long-term average retail inflation rate in India of 6 percent per annum, then after 30 years i.e. when you turn 60, you will need about ₹2,87,000 (about ₹34.5 lakh annually) every month to maintain a lifestyle equivalent to ₹50,000 today. After retiring at the age of 60, if the average life expectancy is considered to be 85 to 90 years, then you will have to bear the same expenses for the next 25 to 30 years without any active salary. Apart from this, after retirement, the cost of medical expenses, healthcare and old age medicines increases at a faster rate than normal inflation. Considering the Safe Withdrawal Rate of 4% and post-retirement returns, having a corpus of at least ₹10 to ₹12 crore at the age of 60 becomes the basic guarantee of a secure and worry-free life.

There are two ways to prepare a retirement corpus. The first way is that you have already accumulated investments which can grow without withdrawal till the age of 60, and the second way is that you start lump sum monthly SIP every month. If we assume an average compound annual return (CAGR) of 12 per cent over the long term from the stock market and diversified equity mutual funds, then to reach ₹12 crore at the age of 60, your existing fund structure should be as follows by age:

If you are 30 years old, you have 30 full years of golden time available for retirement. If you already have any old investments at the age of 30, you should have an existing portfolio of around ₹40 lakh today to reach the target of ₹12 crore. If this ₹40 lakh is compounded at 12% per annum for the next 30 years, it will automatically turn into ₹12 crore by the age of 60 without adding any new rupees. Whereas if you have not made any significant savings till the age of 30 and are starting from scratch, then you will have to start equity SIP of around ₹34,000 to ₹35,000 per month to build a corpus of ₹12 crore. In 30 years you will deposit a total of ₹1.22 crore and the power of compounding will leave you with a corpus of ₹12 crore, making a net profit of ₹10.78 crore.

If you have reached the milestone of 40, you have exactly 20 years left to prepare for retirement. Due to the halving of time, the pressure of compounding increases rapidly. If you want your existing corpus to grow to ₹12 crore at age 60 without any fresh savings, then by age 40 you should have an accumulated retirement portfolio of at least ₹1.24 crore to ₹1.25 crore. If you do not have this fund and you start this mission afresh at the age of 40, you will have to do a huge SIP of around ₹1,20,000 every month. Your total pocket money in 20 years will be ₹2.88 crore and with 12% returns your total fund will reach ₹12 crore. At the age of 40, the burden of monthly savings directly increases three and a half times as compared to the age of 30.

At the age of 50, the countdown to retirement starts and you have only 10 years left. If you want your money to grow to ₹12 crore in 10 years, then at age 50 you should already have a lump sum corpus of at least ₹3.85 crore to ₹3.87 crore. At a compound growth rate of 12%, this ₹3.86 crore increases almost three and a quarter times to ₹12 crore in 10 years. If an investor at the age of 50 aims to accumulate ₹12 crore from zero, he will have to do SIP of around ₹5,15,000 to ₹5,20,000 every month, which becomes almost impossible for a normal working person. This is why financial experts recommend laying the foundation of a retirement fund as early as possible.

(Note: This calculation has been done based on 12% compounded annual return in equity mutual funds and a retirement age of 60.)

If taking out a monthly SIP of ₹35,000 or ₹1,20,000 initially in your 30s or 40s is beyond your current budget, then step-up SIP proves to be the most practical strategy. As your income increases with age and promotion at work, you can increase your SIP amount by 10 percent every year. For example, if you start with just ₹15,000 per month at the age of 30 and add 10% to it every year, then after 30 years you can easily build a corpus of more than ₹12 crore with 12% returns. This technique provides young investors the financial flexibility to achieve big goals despite low initial salaries.

Building a corpus of ₹12 crore is not just a game of saving money, but the art of investing money in the right asset class. At the age of 30 to 40, 70 to 80 percent of your investment should be in equity mutual funds (large cap, flexi cap, mid cap), while the remaining 20 percent should go in EPF, PPF and National Pension System (NPS). At the age of 40 to 50, equity should be brought down to 60 percent and debt funds and government bonds should be increased to 40 percent. When you cross the age of 50, you should gradually start shifting money from equity to safe debt and liquid funds through ‘Systematic Transfer Plan’ (STP) so that your savings can be protected from any major market crash just before retirement.