Retirement Planning: How delaying investment by 10 years may cost you Rs 5.05 cr in retirement corpus

Market gurus often tell us to start investing early. When we start investing early, we get more time to grow our wealth compared to the one who starts late. Another advantage is that even if you invest in market-linked investment, where market goes through fluctuations, you get sufficient time to overcome them. Another important thing that happens when you start early is that you get a chance to build a huge retirement corpus even if you invest a small monthly amount than the one whose monthly investment is double than yours but whose investment duration is shorter. It becomes possible in schemes offering compound growth.     

E.g. if two investors, one with Rs 5,000 monthly and another with Rs 10,000 a month, invest in a market-linked programme such as mutual fund through the systematic investment plan (SIP) and get a 12 per cent annual return on their investments, then the one with Rs 5,000 SIP can accumulate more wealth despite investing less money than the one with Rs 10,000 SIP. 

If one starts an SIP of Rs 5,000, invests their money for 15 years and gets a 12 per cent return, then in 15 years, they will invest Rs 900,000, their long-term capital gains will be Rs 16,22,880 and the expected amount will be Rs 25,22,880.

If one starts an SIP of Rs 10,000, invests it for 10 years and gets a 12 per cent return on it, their investment in those years will be Rs 12,00,000, long-term capital gains will be Rs 11,23,391 and the expected amount will be Rs 23,23,391. 

Here, it is clear that the one with a Rs 5,000 SIP is a clear winner over the one with a Rs 10,000 SIP because of five years of extra investment, they got compound growth that helped them pip the another investor.

Had the one with a Rs 10,000 SIP would have invested for five more years, i.e. total 15 years, their investment would have been Rs 19,20,000, and their expected amount would have been Rs 58,13,782. 

How early starters can have an edge over late starter in building more retirement fund

When you aim to create a retirement fund, an investment time frame can be anywhere between 20 to 30 years.

Here, we take the example of investor A who starts investing at 35 and invests for 20 years. On the other hand, Investor B starts investing at 25 years of age and invests for 30 years.

Here, investor A invests Rs 20,000 in an SIP for 20 years and investor B invests just Rs 10,000 through SIP for 30 years.

Both get 12 annual returns on their investments.

Here’s what will be their retirement corpus on completion of their respective investment periods- 

Investor A will invest Rs 48,00,000 in 20 years, their long-term capital gains will be Rs 1,51,82,958 and the total amount will be Rs 1,99,82,958 (approx. Rs 2 crore).

Investor B will invest Rs 36,00,000 in 30 years, their long-term capital gains will be 3,16,99,138 and their expected amount will be Rs 3,52,99,138 (Rs 3.53 crore).

Now what if investor B also starts with Rs 20,000 SIP and invests it for 30 years, their investment will be Rs 72,00,000, long-term capital gains will be Rs 6,33,98,275 and the expected amount will be Rs 7,05,98,275.

So, we see here how delaying investment by 10 years can cost Investor A Rs 5.05 crore in retirement corpus.