In every financial planning class I need to do a post lunch session. To keep them awake I ask them to do a simple exercise – calculating how much money they require for retirement.

Unless they are at least 32-33 years of age, they have no clue as to how much they need for retirement. Once they see the figure (let us say Rs. 4 crores) they get into a DENIAL mode. Immediate reaction is to say “my father did not need this much amount” or “my expenses will reduce after retirement” or “my children will take care of me”.

Once they cool down, they sit and work out how it can be put together.

What most people do not realise is that the figure looks very big because we are seeing it from a very long tunnel. If I were to tell you that YES you do require Rs. 4 crores to retire, 30 years from now. HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.

So the important lessons in retirement planning are simple – make an estimate of your needs, adjust them for time value, compute the amount that you need to invest on a monthly basis, THEN START TODAY. Do not let the power of compounding go away – harness it when you can. Simple.

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  1. I have a newbie question.Whats the safest investment that would have minimum monthly payment and can give good returns say after 10-20 years ?

  2. Subra Sir,

    Very good article. Esp. liked the below part –

    “HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.”


  3. Assuming GDP growth, income growth for individual and inflation go hand in hand then it is very difficult to have such a long inflationary period of 30 years. Subra himself has pointed out in earlier blog that it is not common thing to have annual GDP growth of 9-10 % for 30 years. On the same lines we wont have y-o-y 9-10 % inflation for 30 years.

    However, everybody should invest 3K/month so that the person can enjoy the things 30 years later which are available at 3K today. 🙂

  4. I was thinking of sensex ETF but I am confused about expense ratio.

    How does ETF management recover management expenses?
    How does it work for gold ETF? if expense ratio is 1% does it mean that management sell 1% gold holding every year? I am not able to see any other way. More specifically, if I had bought a gold ETF of 1 gram 5 years back and the expense ratio is 1% then should the value of the unit be .95 gram gold at this time?

  5. subra,

    are u considering CAGR of 17.7% to arrive at figure of Rs. 4 crores by investing 3000 per month ?

    17.7% seems to be quite high return we are expecting…what do you think ?

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