Mutual funds are often a to-go investment option for several retail investors. These investors tend to their varying financial goals with the help of mutual fund investment. However, did you know that you can use mutual funds to achieve other goals as well? Mutual fund investments also have the potential to generate post-retirement income for individuals as well. Several tax and investment experts and advisors believe that SIP (systematic investment plan) can help an investor to grow their capital to serve their post-retirement needs. However, if used wisely, this money can also help investors to continue earning income post-retirement as well. How can one do this? How can one use SIP investments to earn a pension post-retirement? In this article, we will try to find the answers to these questions.
To earn income on a regular basis even after retirement, one must invest the SIP mutual fund maturity amount in SWPs – systematic withdrawal plan. To begin to earn income post retirement, you must first analyse the monthly income required by you to meet their financial goals. Next, you must calculate the sum of money required to serve your post-retirement financial needs. Once you have analysed the monthly amount required to meet these two financial goals, finally you must calculate the monthly SIP amount needed to meet your post-retirement monthly target goal using an SIP calculator.
Using an SIP return calculator, you would find that in order to earn Rs 1 lac pension post-retirement for a duration of around 25 years, one would need around Rs 1.35 crore, provided that the investment options that an investor has invested in their SIP mutual funds’ maturity amount offers an average returns at 8% per annum. There may be scenarios in which an individual wishes to retire early. In such a case, the duration of the post-retirement monthly income would increase. This basically means that an investor has lesser time to create a retirement corpus for them and would have to save more to fulfil post-retirement income needs. Let’s assume that Ram wishes to retire by the age of 55. Assuming that he has to save enough to earn Rs 1 lac pension for around 30 years, he would need to invest at least around Rs 1.43 crores in SWP.
Now the next question arises, how to achieve a monthly income of Rs 1 lac post retirement? Well, to achieve that you can begin to invest in SIP a monthly investment amount at Rs 2100 and work on increasing this investment amount by 15% per annum through step-up SIPs. Assuming that the mutual fund investments offer CAGR at 12% p.a., you would end up accumulating around Rs 1.43 crores by the end of 30 years. If you invest this maturity amount of Rs 1.43 crore in mutual funds that provide average returns at 8% p.a. through SWP mode of investment, you’d be able to withdraw Rs 1 lac pension for at least 30 years. Happy investing!
