« Understanding tax deferment: how this concept improves your investment returns? Frequently asked questions on NRE Fixed Deposits (NRE FD): the complete guide »

How big will your portfolio grow in retirement?

Posted on 28 May 2023
Author: Sayan Sircar

Tags: Retirement

3 mins read
📢Join 3500+ readers on WhatsApp and get new post notifications!

This article gives you a glimpse of how the power of compounding creates a multi-crore portfolio in retirement.

How big will your portfolio grow in retirement?

📚 Topics covered:

Introduction
A worked-out example
- Assumptions made
- Model output
Generalising the result
How to create a retirement portfolio that helps you reach such corpus figures?

Introduction

Compounding formula

This article continues our previous article on compounding: How compounding works: the journey to a 10 crore portfolio.

We will show how compounding is expected to create phenomenal wealth over the lifetime of your portfolio. In many articles and online calculators, you can see the corpus you need to accumulate by retirement.

For example, an investor expecting to retire in 20 years for a lifestyle that costs ₹50,000/month in today’s money needs to reach a retirement corpus of ₹8 crores in 20 years to retire.

However, you will be surprised to know that this corpus is expected to grow to ₹22 crores over the next few decades. These numbers are expected to be a fun thought experiment based on certain assumptions, so do not expect to get these exact numbers if the markets do not perform as expected.

A worked-out example

Assumptions made

We will make the following assumptions:

Annual expenses if retired today (lakhs): ₹6.00/year
Inflation: 7% (current and post-retirement)
SIP Increment: 10%/year
Years to retirement: 20
Average Equity return post-tax: 11%
Average Debt return post-tax: 4%
40 years in retirement

We will use the Arthgyaan goal-based investing tool to calculate the target retirement corpus and the portfolio value from today until the end of retirement.

Model output

(click to open in a new tab)

The outputs are:

retirement corpus is ₹8 crores
peak corpus reached after 46 years from today, i.e. at the age of 66
peak corpus value is ₹22 crores

Using the Arthgyaan goal-based investing tool, we can see that in the accumulation stage, i.e. while you are earning,

the portfolio value and the equity and debt allocations increase with time
the equity allocation falls as retirement comes closer

Once retirement starts

the overall portfolio rises first and then starts falling after a peak
peaks of equity and debt components are reached at different times
the equity allocation first rises in retirement and then falls to zero

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

Also read
What is MFCentral and why you should be using it?

Generalising the result

(click to open in a new tab)

This chart shows how the portfolio reaches its peak at different times, using the same assumptions but varying the time left until retirement. Many investors will be shocked at how, due to the power of compounding, the portfolio value reaches enormous values. For example, a 30-year-old targeting retirement after 30 years may expect to see a portfolio of ₹16 crores (at the start of retirement) grow to ₹70 crores near the end of retirement.

How to create a retirement portfolio that helps you reach such corpus figures?

This article shows a simple retirement and review plan that anyone can follow in a step-by-step manner: Low-stress retirement planning calculations: worked out example. Once you follow these steps, creating and maintaining a retirement portfolio and reaching such significant corpus figures becomes very doable.

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

For resident Indians 🇮🇳:

For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:

Share on WhatsApp:

To understand how this article can help you:

If you have a comment or question about this article

The following button will open a form with the link of this page populated for context:

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Previous and next articles:

<p>This article explains the concept of tax deferment and how it helps you convert income into capital gains that improve returns.</p>

Tax

Understanding tax deferment: how this concept improves your investment returns?

This article explains the concept of tax deferment and how it helps you convert income into capital gains that improve returns.

Published: 24 May 2023

5 MIN READ

<p>This article compiles an exhaustive list of FAQs on the concept of NRE Fixed Deposits (NRE FD).</p>

FAQ NRI Fixed Deposit

Frequently asked questions on NRE Fixed Deposits (NRE FD): the complete guide

This article compiles an exhaustive list of FAQs on the concept of NRE Fixed Deposits (NRE FD).

Published: 31 May 2023

1 MIN READ

Latest articles:

<p>This article provides an alternative to the usual safe investments that retirees choose vs growing their wealth without taking market risk themselves.</p>

Senior Citizens Retirement

Can senior citizens get both safety and high returns from their retirement portfolio?

This article provides an alternative to the usual safe investments that retirees choose vs growing their wealth without taking market risk themselves.

Published: 22 December 2024

8 MIN READ

<p>This article simplifies compliance for US, Canada, UK, and Australia-based NRIs, covering FBAR, FATCA, PFIC, and T1135 requirements.</p>

NRI Tax

What NRIs Must Do With Indian Investments Before the Year-End? PFIC, FATCA, DTAA and ITR rules Simplified

This article simplifies compliance for US, Canada, UK, and Australia-based NRIs, covering FBAR, FATCA, PFIC, and T1135 requirements.

Published: 18 December 2024

6 MIN READ

Topics you will like:

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

Arthgyaan

Supporting everyone's personal finance journey