Mutual Funds Strategy 107: Magic of Getting Your Income to Grow Even After Retirement.

Countless articles have been written about retirement, but nobody has explained what really happens to your income post-retirement. Trust me, I have read more than 20 articles, but never got the answer to this crucial question.

Let me break the suspense — your income does not stop even after retiring. People think when you withdraw from your savings, the savings become smaller. The reality is that the savings go up. Shocked to hear right, let me break it down with two examples.

For illustration, I am assuming the following:

1. The retirement age is: 50
2. The retirement corpus is: 2,00,00,000 rupees

Let us analyze those two points in specific before going on to the redemption calculations. Retiring at the age of 50 is highly possible, 40 may be too soon and 60 may be too late — 50 would be the best scenario.

The reason 40 is too early is because the bulk of your income is going to come between 40 to 50s — that’s when you would be at the prime of your career.

The reason 60 is too late is that you might have developed countless health issues, and lifestyle diseases and maybe not be in the best shape to enjoy your life.

If you are a salaried person, retiring at 50 will open up a world of possibilities for you.

1. You will still have the energy to chase that passion of yours — singing, dancing, cooking, driving, painting, etc.
2. You are staying out of the nasty office politics and stress that will ruin your 50s to 60s.

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Now to retire at 50s, you might have to start at 20s. You are staying disciplined for 30 strong years to build a corpus income. The sum of 2 crores I mentioned is not a big deal if you follow the math. A SIP of Rs4600 per month will help you get there.

I am quite sure, most of you would be able to contribute more than that per month, but what I am not sure of is how many of you are still in your 20s.

Let us take one more case, wherein your age is 40 and you wish to retire in 10 years with a corpus of 2 crores. Refer to the image below, you need a monthly SIP of 81000 to reach there.

Takeaway: Time plays an important part in wealth building.

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Since we cared to explain the assumptions, let us head directly to the redemptions part.

Case 1: You are redeeming Rs1,00,000 per month for the next 30 years.

Case 2: You are redeeming Rs2,00,000 per month for the next 30 years.

As I write this article a monthly income of 1 lakh is more than enough to support a decent family of 4. A monthly pension of 2 lakhs may put you in the upper band of middle-class category.

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Case 1: Monthly redemption amount = 1 lakh. Redemption Tenure: 30 years.

You are planning to enjoy your retirement life from 50s to 80s ie 30 long years. Even if you withdraw 1 lakh every month, i.e. 12 lakh per year. You will end up walking away with a final portfolio balance of 52.55 crores at the age of 80. Shocked?

You will end up withdrawing 3.6 crores in 30 years, but your fund value will still go up. There are 2 reasons for this, firstly because of the corpus (principal) you have built. Secondly, the magic of compounding still works on the leftover amount.

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Case 2: Monthly redemption amount = 2 lakhs. Redemption Tenure: 30 years.

Here you will end up withdrawing 7.20 crores in the 30-year period, but you will still end up having a portfolio balance of 8.34 crores at the age of 80.

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The reason you are investing is to have a better tomorrow. Just like investing, redeeming the investment is also a discipline. And always remember, time is more important than money. A SIP of 4600 in your 20s and a SIP of 81000 in your 40s is a huge difference, the saying “The early bird catches the worm” is never truer.

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We have calculated a model wherein a person works for 30 years and then enjoys his retirement for the next 30 years. We have not accounted for inflation or other expenses that may arise with age.

Calculators are for illustrations only and do not represent actual returns.
Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.

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