Retirement Plan For The Retirement Period Essay

2516 Words May 13th, 2016 11 Pages
When savings are invested the returns earned help accumulate the funds required to meet the individual’s financial goals. For example, retirement is a goal that requires a large sum of money to be accumulated that will in turn be utilized to generate the income required to meet the expenses in the retirement period. The expenses in retirement have to be met out of own funds and not out of loans or borrowings. Given the large sum or corpus required it can only be accumulated over a long period of time. One way to get a little help in this task is from the returns that the savings are capable of earning.
Consider the following example:
X wants to accumulate a corpus of Rs. One crore through monthly savings over a 25 year period. If X were to depend upon his savings alone he would require to set aside Rs. 33,000 per month. Instead, if the monthly savings were being invested at 8% the savings required to reach the same sum of Rs. One crore in 25 years would be only Rs. 10,500.
If the money set aside is invested then the returns earned on the investment would also contribute to the corpus required, thus freeing up the savings for other goals and needs which otherwise would have had to be set aside for the retirement goal. In the above example, Rs.22,500 (Rs.33,000- Rs.10,500) becomes available to Mr. X each month to use for other goals because investing just Rs.10,500 every month and earning compounded returns on it gets him to his goal.
Higher the returns earned lower will…

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