How to Build Your Retirement Corpus One Month at a Time

Retirement planning is about ensuring that you have sufficient income and assets to meet expenses after you stop working. During your working years, salary or business income pays for regular expenses. After retirement, that income may stop, but household expenses continue. Inflation can also make the same lifestyle considerably more expensive over time.

The task, therefore, is to build a corpus that can support expenses for perhaps 20–30 years after retirement. A systematic investment plan, or SIP, can make this long-term goal more manageable by investing small amounts regularly.

Invest in line with your income cycle

Most people have a monthly income. SIPs allow them to invest in the same rhythm by directing a fixed amount into mutual funds. This helps investors build retirement savings gradually instead of waiting to accumulate a large surplus. It also introduces discipline and reduces the temptation to postpone investing while waiting for the “right” time to enter the market.

An SIP is a method of investing rather than a retirement product by itself. Its effectiveness depends on how much is invested, how long the money remains invested and the asset allocation chosen.

Start early

Time can make a substantial difference to retirement investing. Consider an investor who invests ₹10,000 every month for 30 years. At an assumed annual return of 10 per cent, the corpus could grow to around ₹2.26 crore. If the same ₹10,000 SIP is started only 20 years before retirement, the accumulated amount would be around ₹76 lakh.

The difference highlights the cost of delaying retirement investing. To accumulate roughly the same ₹2.26 crore in 20 years at the same assumed return, the investor would need to invest close to ₹30,000 every month.

Starting earlier, therefore, does not merely give investments more time to grow. It can also significantly reduce the monthly amount required to pursue the retirement goal.

Increase SIP over time

Starting an SIP is important, but keeping the contribution unchanged for decades may not be enough. Suppose someone starts with a ₹10,000 monthly SIP early in their career. As salary rises over the years, that ₹10,000 may become a much smaller proportion of income. Meanwhile, the retirement requirement may also rise because of inflation or change in lifestyle habits.

One practical approach is to increase the SIP periodically, particularly after salary increments. This allows retirement savings to grow along with earning capacity rather than remaining anchored to an amount chosen many years earlier.

The portfolio should also be reviewed periodically.

Build retirement plan around the goal

The SIP amount should ideally flow from the retirement goal, not the other way around. Investors can begin by estimating their likely retirement expenses, accounting for inflation and considering how many years the retirement corpus may need to last.

Asset allocation is equally important. Investors with a long period before retirement may be able to take greater equity exposure according to their risk profile. As retirement gets closer, gradually reducing risk and considering a more conservative allocation for near-term needs can become more important.

Retirement may be decades away, but the money required for it is built one month at a time. Starting early, increasing investments as income grows and staying disciplined can make a distant retirement goal considerably more manageable.

Disclaimer: The views expressed in this article are the personal views of Gautam Singhania, Mutual Fund Distributor, and do not necessarily reflect the views of Outlook Money. The article is intended for informational and educational purposes only and should not be construed as investment advice or a recommendation to invest in any mutual fund scheme or other financial product. Returns used in the illustrations are assumed only for explanatory purposes and are not guaranteed. Investors should consider their financial goals, risk profile and individual circumstances before making investment decisions.

Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature