Mutual fund SIP calculator: Want to retire at 45? ₹9000 monthly savings can help you get ₹2 lakh per month pension
A 25-year-old investor can accumulate ₹3,64,92,972 in the next 20 years through a disciplined monthly SIP of ₹9,000, potentially providing a monthly pension of ₹2 lakh post-retirement at 45 through a SWP for the next 40 years
Mutual fund calculator: The difference between a normal investor and a smart investor lies in small habits. For example, a normal investor starts investing in equity mutual funds in a Systematic Investment Plan (SIP) mode for the long term with a fixed amount. But a smart investor would increase their monthly SIP amount with each annual salary increase, using the annual step-up tactic. This single trick makes a huge difference in one's retirement savings, enabling an investor to pre-pone retirement.
Looking at the job opportunities available after globalisation, many professionals are starting their investments at 25. However, when you start your career so early, you want to retire ahead of the normal retirement age.
According to a tax and investment expert, an investor can plan to retire at 45 by investing in a mutual fund SIP in a monthly mode, accumulating a retirement corpus of ₹3,64,92,972, or say ₹3.65 crore, from a single investment instrument — a mutual fund monthly SIP. To achieve this maturity amount by the time the 25-year-old investor turns 45, they need to increase their monthly SIP by 15%. However, after retiring at 45, they need to do an extra step of investing the entire amount in the Systematic Withdrawal Plan, which offers around 7% returns to investors, enabling them to beat annual inflation.
According to the mutual fund calculator used in this calculation, if an investor starts a monthly mutual fund SIP of ₹9,000 for 20 years, using a 15% annual SIP step-up for the entire period and expecting a 15% annual return, the investor would accumulate around ₹3,64,92,972 or ₹3.65 crore at the time of retirement. Then, if the investor allocates ₹3.65 crore to a SWP plan, assuming a 7% return, they can get a monthly pension of ₹2 lakh and a contingency fund of ₹6,73,41,557 or ₹6.73 crore for any medical emergency.
How does SIP step-up impact your maturity amount?
Speaking on how a smart investor accumulates much more than a normal equity mutual fund investor, Pankaj Mathpal, CEO & MD at Optima Money Managers, said, “Equity mutual funds offer a monthly SIP with an annual step-up offer. However, a few people choose an annual step-up. This leads to almost half of the amount which they could have accumulated by opting for the annual step-up.”
On how much annual SIP step-up an investor can opt for, SEBI-registered tax and investment expert Jitendra Solanki said, “In normal conditions, an investor takes a 10% annual SIP step-up. However, if someone wants to retire at 45, then it is advised to maintain an annual step-up of 15%."
Mutual fund SIP calculator
Assuming a 15% annual return on a mutual fund SIP of ₹9,000 per month, with an annual step-up of 15%, the SBI Securities mutual fund would be ₹3.65 crore after 20 years.
So, if an earning individual aged around 25 starts a monthly SIP of ₹9,000 and increases it by 15% per year for the next 20 years, it would accumulate to around ₹3.65 crore at 45.
How to use SWP for a monthly pension?
The investor can use this maturity amount to get a monthly pension after retirement. What they need is to invest the entire ₹3.65 crore in SWP for the next 40 years, as the investor is retiring early at 45.
On how much monthly income would be required after 20 years, Jitendra Solanki said, “Today, ₹40,000 per month is an amount which is enough for a lower middle class senior citizen. Assuming 7% annual inflation, including healthcare and education, one would require around ₹2 lakh per month after 20 years.”
Suggesting senior citizens with some risk appetite to invest in SWP, Pankaj Mathpal of Optima Money said, “An investor can expect 6-7% annual return on their SWP, which will help them to beat the annual inflation. And assuming the life expectancy of 85 years, then a senior citizen needs to plan for the next 40 years post-retirement.”
If a 25-year-old investor accumulates ₹3.65 crore in the next 20 years and invests this ₹3.65 crore in SWP for the next 40 years, then one can expect to get a ₹2 lakh monthly pension and a contingency fund of ₹6,73,41,557 or ₹6.73 crore still available, which can be used for any big medical emergency.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
About the Author
Asit Manohar has nearly two decades of experience in the mainstream media. In this period, he has served esteemed media organisations like NDTV Profit, The Economic Times, and Zee Business. He has been working at LiveMint Digital since April 2021. During these two decades of journey in mainstream media, Asit has mainly covered external affairs, markets and personal finance. However, his earliest beats include railways, SME, MSME, and politics (Congress beat). Some of his features on political, economic, and foreign policy are documented in the parliamentary records. <br><br> While pursuing his MA (Mass Communication, Session 2004-06), Asit began his media career as a stringer at All India Radio in Varanasi. At AIR Varanasi, Asit worked with the Gyanvani, Yuvvani and Vividh Bharti teams. After working for nearly one year at AIR Varanasi, he shifted to print journalism and started working as a stringer for the HT Media Ltd, Varanasi. At HT Media Ltd in Varanasi, he covered the BHU beat. <br><br> Asit has also worked with some brokerage houses. He has worked with Religare Broking and India Infoline, where he assisted the research team in developing and executing trade strategies for intraday cash, F&O, and commodities. <br><br> Asit is a Gold Medalist in MA (Mass Communication) from BHU, Varanasi. He did his BSc. (Hons) in Mathematics from Magadh University, Bodh Gaya. Asit was a National Talent Scholarship holder during his senior secondary studies (1988-91).
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