To understand this trick better, let’s establish some standard assumptions. Imagine you are 25 years old and you start investing ₹10,000 every month through a Systematic Investment Plan (SIP). Also, let’s assume you anticipate an average return of 12% on your investment until retirement. We mention 12% as a minimum; it could potentially be between 15% to 20%. If the market performs well, your returns could significantly increase. Remember, market returns can fluctuate, so a conservative estimate of 12-15% can be a good approach. Even if your returns dip by just 1%, you can still easily achieve a monthly income of ₹2 lakhs. Now, let’s dive into understanding the 555 SIP formula.
What Does the 555 Formula Mean?
The Triple 5 formula breaks down as follows: the first ‘5’ signifies retiring five years earlier than usual. The second ‘5’ implies that you need to increase your SIP amount by 5% each year. The third ‘5’ states that if you continue to invest in this manner, by the time you reach the age of 55, you could accumulate a fund of ₹5.28 crores. In other words, with a slight adjustment in your SIP strategy, you can retire earlier than anticipated.
Understanding the Calculation
Let’s consider an example where you start investing ₹10,000 every month in an SIP and increase your investment by 5% annually, with an average annual return of 12%. Over a period of 30 years, by the time you turn 55, your total investment will be approximately ₹79.73 lakhs. Thanks to the power of compound interest, you will earn around ₹4.48 crores as interest, resulting in a total corpus of ₹5.28 crores.
Breakdown of Your Investment
| Years | Monthly SIP (₹) | Total Investment (₹) | Gains from Interest (₹) | Total Corpus (₹) |
|---|---|---|---|---|
| 30 | 10,000 | 79.73 lakhs | 4.48 crores | 5.28 crores |
Post-Retirement Income
After accounting for long-term capital gains tax, when you retire with a fund of ₹4.74 crores, you can also earn interest at a rate of 6% from fixed deposits. This would yield an annual income of approximately ₹28.42 lakhs, translating to around ₹2.37 lakhs per month. This ensures that you have a comfortable and substantial pension to support your lifestyle in retirement.
Conclusion
By following the 555 SIP formula and being disciplined in your investments, you may not just secure your financial future but also enjoy the benefits of early retirement. It’s essential to stay committed and to periodically review your investments to ensure they are aligned with your financial goals and changing market conditions. Remember, the earlier you start investing, the greater your potential rewards can be.
