Business Desk – After retirement, the source of income may stop, but the expenses do not stop. Regular household expenses, medical needs and inflation can increase financial pressure in old age. In such a situation, the best way to prepare a big fund for retirement is to start investing from the very beginning of the job.

There is no need to invest a huge amount in the beginning to create a retirement corpus of Rs 5 crore. Small SIPs, the power of time and compounding can create a huge corpus in the long run. Veteran investor Warren Buffett has also been emphasizing long-term investing and the power of compounding. At the age of 20 to 25 years, one can start with a monthly SIP of Rs 5,000 or Rs 10,000.

As income increases, it is important to keep increasing the SIP amount. At the same time, as retirement approaches, the share of investment in equity can be gradually reduced and the focus can be placed on protecting the accumulated capital from major market decline.

At the age of 20, time will become the biggest weapon.

According to Shiva Grover, Founder-Equitrust Solutions, retirement planning does not just depend on how much you are investing every month. How early the investment was started and how the balance of Equity and Debt in the portfolio changes with age is also very important.

People who start investing in their 20s have a long time horizon. Such investors can consider keeping around 70 to 80% equity in their long term portfolio. You can also start with SIP of Rs 5,000. After this, increasing the SIP as the income increases can increase the benefit of compounding.

Emphasize on increasing SIP at the age of 30

Earnings usually start increasing by the age of 30, but during this period, expenses on house, children's education, loan and other expenses also increase. Therefore, instead of stopping investment, a strategy of increasing SIP with income can be adopted. At this age, keeping around 60 to 70% Equity Allocation can be considered.

According to the example of Kundan Prajapati, Founder- The Trading Scholar, if a monthly SIP of Rs 5,000 is started from the age of 20 and an average return of around 11% is received in the long run, then by the age of 30 a fund of around Rs 10.85 lakh can be created. After this, by increasing SIP to Rs 11,000 per month, the corpus can reach around Rs 54 lakh by the age of 40.

Along with growth, safety is also important at the age of 40.

By the age of 40, the investment corpus can increase significantly. At this time, instead of focusing only on earning higher returns, a strategy to safeguard the amount already deposited also becomes necessary. At this age, it can be considered to keep about 50 to 60% in Equity and the remaining part in relatively stable investments like Debt.

In the given example, based on 60% Equity, around 10% return and Monthly SIP of Rs 16,000, the fund can reach around Rs 1.79 crore by the age of 50. However, this is an approximate calculation and actual returns will depend on market performance.

Reduce risk gradually after age 50

After the age of 50, retirement starts coming closer. At this time, if there is a sudden big fall in the market, it can be difficult to recover the loss, because the investment does not get as much time to recover as before. Therefore, in this phase, consideration can be given to gradually reducing Equity Exposure and increasing the share of Debt and other relatively stable options.

In Kundan Prajapati's example, based on 50% Equity Allocation, expected return of around 9.5% and Monthly SIP of Rs 30,000, the fund can reach more than Rs 5 crore by the age of 60. This means that the target of Rs 5 crore can be achieved by making regular investments over a long period of time and increasing the SIP over time rather than just trying to achieve it with a big initial amount.

How to understand the target of Rs 5 crore?

The entire formula in this example is based on three things—starting early, increasing the SIP every few years and changing the asset allocation as per age. By keeping more equity in the beginning, the focus can be on long term growth. With increasing age, attention can be increased to reducing risk and protecting the capital deposited.

However, corpus of Rs 5 crore is not a guaranteed target. The figures given above are based on estimates and illustrations. Actual returns will depend on market movements, investment period, taxes, fees, inflation and changes made in SIP.

Don't just run after returns

The most important thing in retirement planning is not to catch the ups and downs of every market, but to keep investing with discipline for a long time. Regular SIP, step-up in SIP as income increases, periodic portfolio review and change in equity allocation as per age can help in strengthening the retirement corpus.

That is, if the target is Rs 5 crore, then the most important question is not how much amount should be invested today, but how soon the investment is being started and how regularly it is being increased in the coming years.