Monthly Pension – 5 Crore Savings and 2.37 Lakh Monthly Pension with the Triple 5 Strategy

Monthly Pension

It’s never too early to start thinking about retirement plans. The earlier you begin planning and investing for retirement, the more likely you are to achieve a comfortable and financially secure retirement. However, many people delay this crucial aspect of financial planning until it is too late. To secure a good income post-retirement, it is essential to choose the right investment schemes early in your working life. One effective strategy for achieving a substantial retirement fund is the Triple 5 strategy. This essay will explore the concept of the Triple 5 strategy and how it can help you amass a retirement fund of Rs 5 crore and a monthly pension of Rs 2.37 lakh.

The Importance of Early Retirement Planning

Retirement planning is often overlooked until one is well into their career. However, the key to building a robust retirement corpus lies in starting early. The power of compounding works best over long periods, significantly increasing the value of your investments. By beginning your retirement planning early, you can take advantage of the growth potential of various investment avenues, ensuring a financially secure future.

Understanding the Triple 5 Strategy

The Triple 5 strategy is a simple yet powerful approach to retirement planning. It revolves around three key principles, each represented by the number 5:

1. Retire Five Years Early: The first “5” in the Triple 5 strategy stands for retiring five years earlier than the traditional retirement age. For instance, if you plan to retire at 60, aim to retire at 55. This early retirement goal gives you a head start in enjoying your post-work life and motivates you to be disciplined in your financial planning.
2. Increase SIP by 5 Percent Annually: The second “5” signifies increasing your Systematic Investment Plan (SIP) contributions by 5 percent each year. A SIP allows you to invest a fixed amount regularly in mutual funds, benefiting from the power of compounding and rupee cost averaging. By incrementally increasing your SIP contributions, you can steadily build a substantial retirement corpus over time.
3. Achieve a Fund of Rs 5.28 Crore by 55: The third “5” represents the target fund size of Rs 5.28 crore by the age of 55. This amount is achievable through disciplined investing and consistent increases in SIP contributions. By following this strategy, you can retire with a significant retirement fund that will provide a comfortable monthly pension.

Applying the Triple 5 Strategy: A Detailed Example

Let’s illustrate the Triple 5 strategy with a practical example. Suppose you start investing Rs 10,000 every month in a SIP from the age of 25. By incrementing your SIP by 5 percent annually and assuming an average annual return of 12 percent, you can build a substantial corpus by the age of 55.

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Initial Investment

• Monthly SIP: Rs 10,000
• Investment Period: 30 years (age 25 to 55)
• Annual Increment in SIP: 5 percent
• Expected Annual Return: 12 percent

Total Investment

Over 30 years, your total investment will be around Rs 79.73 lakh. This amount is calculated by summing up the monthly SIP contributions, which increase by 5 percent each year.

Growth of Investment

Assuming an average annual return of 12 percent, your investment will grow significantly over the 30-year period. The power of compounding plays a crucial role here. The interest earned on your investment will accumulate and grow exponentially over time.

Final Corpus

By the age of 55, your total investment will amount to approximately Rs 5.28 crore. This corpus is achieved by the growth of your initial investment and the consistent annual increment in SIP contributions.

Post-Retirement Income

Upon retirement, the accumulated corpus can be invested in a fixed-income instrument that provides a steady return. For this example, let’s assume a conservative annual return of 6 percent on the post-retirement investment.

Taxation

Long-term capital gains tax is applicable to the returns earned from the investment. Assuming a 10 percent long-term capital gains tax, the total tax liability on the corpus will be approximately Rs 52.63 lakh.

Net Corpus After Tax

After accounting for the tax, the net corpus will be around Rs 4.74 crore. This amount will be the principal on which the annual return will be calculated.

Monthly Pension

With a 6 percent annual return on the net corpus, you can expect an annual income of approximately Rs 28.42 lakh. This translates to a monthly pension of around Rs 2.37 lakh.

Detailed Calculation

To understand the calculation in detail, let’s break down the steps:

1. Initial Monthly SIP: Rs 10,000
2. Annual Increment in SIP: 5 percent
3. Total Investment Over 30 Years: Rs 79,72,662
4. Estimated Corpus at 12 Percent Annual Return: Rs 5,27,34,060
5. Long-Term Capital Gains Tax (10%): Rs 52,63,406
6. Net Corpus After Tax: Rs 4,73,70,654
7. Annual Return at 6 Percent: Rs 28,42,239.24
8. Monthly Pension: Rs 2,36,853.27

Benefits of the Triple 5 Strategy

1. Early Retirement: The strategy encourages early retirement, allowing you to enjoy your golden years without financial stress.
2. Disciplined Investing: Incremental increases in SIP contributions instill financial discipline and ensure consistent growth of your investment.
3. Substantial Corpus: The strategy helps you build a significant retirement corpus, providing a comfortable monthly pension post-retirement.
4. Power of Compounding: Long-term investments benefit from the power of compounding, significantly enhancing the value of your savings.
5. Tax Efficiency: By accounting for long-term capital gains tax, the strategy ensures that your post-retirement income is tax-efficient.

Conclusion

Retirement planning is a crucial aspect of financial planning that should not be delayed. The Triple 5 strategy offers a systematic and disciplined approach to building a substantial retirement corpus, ensuring a comfortable and financially secure retirement. By retiring five years early, incrementing your SIP contributions by 5 percent annually, and aiming for a fund of Rs 5.28 crore by the age of 55, you can achieve a monthly pension of Rs 2.37 lakh. Start planning early, stay disciplined, and secure your financial future with the Triple 5 strategy.