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

Caselet: Mr. Arvind Kulkarni, aged 45, wants to retire at 60 and expects to need Rs 50,000 per month in today's money. He assumes inflation of 5% and wants to know the first-year monthly expense at retirement. Using (1.05)^15 = 2.08 (rounded), what monthly amount will he need at age 60?

He will need about Rs 1,04,000 per month at age 60. Inflation compounds over 15 years at 5%, so today's Rs 50,000 is multiplied by 2.08. Using simple rather than compound inflation would understate the requirement.

  1. ARs 1,04,000Correct
  2. BRs 87,500
  3. CRs 75,000
  4. DRs 2,08,000

Explanation

Future monthly expense = 50,000 x 2.08 = Rs 1,04,000. Rs 75,000 uses simple inflation of 50% over 15 years (5% x 15 x 50,000 + 50,000 = 87,500 is simple interest; 75,000 is half of that logic), which ignores compounding. Rs 2,08,000 wrongly multiplies by 4.16.

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