28 Nov 2021

Discipline determines the size of your retirement corpus

I am working with a financial planner, and they did some math to make sense of my current portfolio’s value. I knew how many rupees my portfolio was worth, but I didn’t know how many of my financial goals this money was good for. The planner’s way of looking at the corpus gave me a fresh look at the portfolio.

Let’s say the value of my current corpus is X. In about 21 years, I need a retirement corpus that’s at least as large as 3X. Assuming an average annual return of 10%, my existing corpus will double in about 7 years. If I left this corpus of X untouched for 21 years, I’ll have 8X by the time I retire! Such a corpus will be sufficiently large for the kind of retirement I want to have: the kind where I am free to travel, have sufficient buffer for unexpected emergencies, generously spend on life events of children and grandchildren, etc.

While this corpus grows in the background, I’ll also be making fresh investments in the next 21 years. All the new investments that I’ll be making towards retirement in the next 21 years will only grow to X. It’s almost unbelievable how little my new investments will amount to (X) vs how much the existing corpus will grow to (8X).

My main takeaway from this newly acquired knowledge is not that I’ll have an easy retirement. The main takeaway is that I should be financially disciplined enough that I am able to manage my day-to-day expenses and other financial goals without touching the current retirement corpus. The corpus will  have a chance to multiply manifold only if I leave it alone and let it grow.

The word 'discipline' with a man pointing his finger at it
‘Discipline’ by Nick Youngson • CC BY-SA 3.0 •  Pix4free.org

With this revelation, I am able to appreciate the truth behind the saying ‘a bird in the hand is worth two in the bush’. The corpus I already have is precious, and I must do what it takes to protect it. Staying disciplined for the next 21 years is far more important than asset selection or timing the market or chasing current trends. Even if I invest all the new money in an amazing product that gives higher return, it’s going to be incredibly hard to beat my existing corpus.

I always knew that investment duration was a critical factor. But seeing the math for my own corpus makes it all the more real. Discipline is hard when it’s a vague belief. Discipline becomes easier when you know it’ll enrich your life.

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