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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Planning Basics

Anita is 35 and plans to retire at 60, expecting to live to 85. She needs an annual income of Rs 12 lakh (in retirement-year rupees) at the start of each retirement year, with no further inflation growth in the payouts. Assume a post-retirement return of 8% per annum and that the present value factor of an annuity-due for 25 years at 8% is 11.52. What corpus is needed at age 60?

The corpus required at age 60 is Rs 1,38,24,000. Because income is drawn at the start of each year, the annuity-due present value factor of 11.52 is multiplied by the annual need of Rs 12 lakh. Ignoring discounting or treating it as a perpetuity gives wrong figures.

  1. ARs 1,38,24,000Correct
  2. BRs 1,28,00,000
  3. CRs 3,00,00,000
  4. DRs 1,50,00,000

Explanation

Payments occur at the start of each year, so an annuity-due factor applies: 12,00,000 x 11.52 = Rs 1,38,24,000. Rs 1,28,00,000 would result from using an ordinary-annuity factor of about 10.67, which is not given. Rs 3 crore is simply 12 lakh x 25 with no discounting, and Rs 1.5 crore is 12 lakh divided by 8%, a perpetuity ignoring the 25-year horizon.

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