Power of Compounding and Your Retirement

The power of Compounding in layman terms states that the more you hold an investment the more is your return.

Power of Compounding for Rs. 5000 Monthly Investment
		Returns @
Number of Years of Investment	Amount Invested	6%	9%	12%	15%
5Year	300,000	350,000	379,943	412,402	448,348
10 Years	600,000	823,508	974,818	1,161,641	1,393,158
15 Years	900,000	1,461,384	1,906,203	2,522,781	3,384,046
20 Years	1,200,000	2,321,783	3,364,455	4,995,559	7,579,206
25 Years	1,500,000	3,482,332	5,647,613	9,487,848	16,419,171
30 Years	1,800,000	5,047,738	9,222,309	17,648,974	35,046,578

Look how a monthly Investment of 5000 can work upto in 30 years even with  6% return on investment. so all i am advising here is to be disciplined in your investments.  

For people who plan to retire my suggestion is too start as early as possible as the more time your investments remain invested more is your return. I have shown a simple example where in which two investors who start at different time frames their investments. The person who starts early need to keep away only a small portion of money. The other person decides to start with almost double but he still can't catch up with the guy who starts early. 

If your goal is to retire at the age of 60 with 50,00,000 and you assume an 8% return, how much will you need to invest Monthly?

Ramu		Shamu
Amount required	5,000,000	Amount required	5,000,000
Expected Rate of Return	8%	Expected Rate of Return	8%
Age	60	Age	60
Current Age	35	Current Age	45
Monthly Payment	5,257	Monthly Payment	14,449

Here you need to appreciate the fact that because Ramu started saving early he need to save only a small amount to reach 50 Laks by Age of 60. Where as shamu did not start early and to make up his 50 lak he now needs to invest more than double the amount of what Ramu is investing. 

Key Takeaway - Start Early Save Regularly for a tension free Retirement Life. 

Key Words: Power of Compounding, Monthly payment, SIP Calculator, Retirement, Savings, Pension