SIP for Retirement
Definition
Retirement SIP planning involves calculating the corpus required to maintain your lifestyle after retirement, accounting for inflation, life expectancy, and post-retirement returns, and then working backwards to determine the monthly SIP needed to build that corpus during your working years.
In Simple Words
Retirement planning is the most critical SIP goal because there are no second chances. You need to estimate: (1) How much you will spend monthly after retirement (adjusted for inflation), (2) How many years of retirement you need to fund (life expectancy minus retirement age), (3) What returns your corpus will earn post-retirement. Then work backwards to find the SIP amount needed today.
Real-Life Scenario
Anil, 30 years old, wants to retire at 55. Current monthly expense: ₹40,000 Inflation: 7% Pre-retirement return: 12% Post-retirement return: 8% Life expectancy: 80 years Future monthly expense at 55: ₹40,000 × (1.07)^25 = ₹2,17,314 Corpus needed for 25-year retirement: ~₹4.5 Crore Monthly SIP required: ₹23,850 With 10% annual step-up SIP, starting SIP: ₹12,000/month This is achievable for Anil on his current salary!
Key Points to Remember
Formula
Retirement Corpus = Monthly Expense × [(1-(1+r)^-n) / r] Where r = real monthly post-retirement return n = retirement months SIP Required = Corpus / [((1+r)^n - 1) / r × (1+r)] Where r = monthly pre-retirement return n = months to retirement
Frequently Asked Questions
Test Your Knowledge
1 questions to check your understanding
What is the "25x rule" in retirement planning?
Summary Notes
Start retirement SIP in your 20s if possible
Account for inflation, healthcare costs, and longevity
Step-up SIP makes retirement planning achievable at any salary level
Post-retirement, use SWP for regular income from your corpus