You may also make use of step-up SIP in which you start with a fixed amount of saving each month and then keep increasing the per month amount by a specific percentage.
A retirement calculator comes handy in finding out how much you need to save every month to create a big enough corpus to retire comfortably. You can decide how much you need on retirement and the retirement calculation will show how much you need to save towards the goal. You will have to do calculations based on an assumed growth rate and for the duration when you wish to retire.
The early you begin saving for retirement, the lower will be the savings required. But as a youngster if you are targeting Rs 1 crore or Rs 2 crore towards your retirement, you need to hike the retirement target. Assuming an annual inflation of 5 per cent, the value of Rs 1 crore and Rs 2 crore will be about Rs 38 lakh and Rs 30 lakh after 20 and 25 years respectively.
There are several crorepati calculators that can help you arrive at the right amount to save for creating Rs 3 crore or even Rs 5 crore , after adjusting for inflation.
Let us see approximately how much you need to save to get Rs 5 crore after 20, 25 or 30 years at an assumed growth rate of 12 per cent per annum.
Rs 5 crore after 20 years
Monthly savings needed : Rs 50000
Rs 5 crore after 25 years
Monthly savings needed : Rs 26500
Rs 5 crore after 30 years
Monthly savings needed : Rs 14250
By doing a monthly saving of Rs 14250, Rs 26500, Rs 50,000, one may accumulate nearly Rs 5 crore over 20, 25 and 30 years, assuming an annualized return is 12 per cent.
Interestingly, as on October 6, 2021, most index funds have generated around 14 per cent over the 10-year period.
SIP Monthly Investment Plan
You can start Systematic Investment Plan (SIP) in equity mutual fund schemes and keep saving regularly towards retirement. When stock market falls by a huge margin, add more into the same mutual fund folio and make use of the low NAVs during that time. Use SIP and lumpsum investing if need be, based on market conditions. You may also make use of step-up SIP in which you start with a fixed amount of saving each month and then keep increasing the per month amount by a specific percentage. And, do not forget to de-risk from equity funds when you are 3 to five years away from your retirement.