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

Caselet: Meena, aged 45, wants to retire at 60 with annual expenses of Rs 6,00,000 in today's terms. Assume inflation of 5 percent a year is already reflected by the adviser as a growth factor of 2.0 over 15 years (rounded for this case). What will her first-year retirement expense be at age 60?

Her first-year retirement expense will be Rs 12,00,000. The current expense of Rs 6,00,000 is multiplied by the stated inflation growth factor of 2.0 over the 15 years to retirement, because costs rise with inflation before she retires.

  1. ARs 12,00,000Correct
  2. BRs 6,00,000
  3. CRs 9,00,000
  4. DRs 30,00,000

Explanation

Future expense = present expense x inflation factor = 6,00,000 x 2.0 = Rs 12,00,000. Using no inflation gives Rs 6,00,000, which ignores the loss of purchasing power. Adding the factor rather than multiplying gives Rs 8,00,000 and is not an option.

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