SIP: Best Way to Secure your Retirement

Written on Saturday, April 9, 2016
By Amit Chauhan

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Fulfilling the basic needs of you and your family is always the prime responsibility of an individual. Traditionally, the basic need of life is food, shelter and clothing, but many modern lists emphasize the minimum level of consumption of the basic needs of not just food, clothing and shelter, but also education, healthcare, and daily expenses. Fulfilling the basic needs of yours’ and your family’s is always going to be the prime responsibility of every individual. But the job does not end here, as you also need to look forward to planning for your retirement corpus. Here the question arises that after fulfilling the basic needs of life, can we actually put some amount aside to plan for our retirement and the answer is yes. Let's understand, how?


Budgeting Formula:

Spending as per monthly budget is the most important part of everyone’s life, which majority of people does not follow in a disciplined manner in our country and that is the reason why by the end of the month, they are left with no money in their bank accounts while carrying huge debts or credit cards and personal loans at the same time.

There is a very simple formula, which we can follow to plan our monthly budget –


(Cash in Hand Salary – Household Expenses – Saving/Investment/Tax Planning = Remaining Amount from Salary)

This, time-tested formula gives you disciplined approach towards maintaining, reducing and monitoring your monthly expenses and savings. The remaining amount of salary, can be either reserved to meet any unfortunate uncertainty or can be used to have dinner or online shopping etc. as per your interest.


Why to Plan for Retirement?

Let's take an example of Mr. Ramesh, a 30-year-old individual spends Rs. 30000 from his salary to maintain his monthly expenses and wish to retire at the age of 60 years. He may need a huge Rs. 1,72,305 per month after retirement to maintain his expenses at an assumed inflation rate of 6% p.a. So the answer is simple, Retirement Planning is the need of the hour and we all should take this responsibility very seriously for maintaining future expenses of our family.


Other Important factors to consider for a Retirement Plan:

  1. After the age of 60 years or above, medical expenses of husband and wife increases at sky rocketing rate.
  2. For salaried employees, regular pension post-retirement is also a necessity.


Early Retirement Planning:

It is always advised by us to all our clients that one should start saving for retirement from the time when they start getting their salary because it will not only boost their confidence towards their responsibilities of life, but also help them build a huge corpus for retirement, just by saving a very little amount every month.


Let's understand with an example: Mr. Ramesh, a 30 year old individual, invested Rs. 2000 per month in Mutual Fund through ''Systematic Investment Planning'' mode, which gives him the benefit of ''Rupee Cost Averaging''. In the 30-year span of time, he is hopeful to build a corpus of approximately Rs. 1.38 crore, at an assumed rate of return of 15%.


As assumed above he is currently spending Rs. 30000 per month and after 30 years i.e. post-retirement, he needs almost Rs. 1.70 lacs per month. So with the assumed Retirement Corpus which he has planned to build i.e. 1.38 crore through SIP in Mutual Funds excluding his other contributions i.e. EPF and PPF, Ramesh could easily enjoy his post-retirement life.


Summary for SIP Planner



Apart from EPF and PPF, every individual can also opt equity mutual funds route to build a corpus for retirement, as the long-term equities have performed really well and have given higher returns than PPF & EPF. There is always an uncertainty that EPF and PPF may not beat inflation, so one should balance his/her investment portfolio with Equity Mutual Funds in order to receive an inflation beating returns, during the long period of time. Also, keep note that the capital gains through equity mutual fund investment will be fully tax-free, after one year of time span.

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