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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

Caselet: Mr. Iyer, aged 40, wants a retirement corpus at 60 that can fund annual expenses of Rs 12 lakh in today's money. Assume inflation of 5% a year and a withdrawal rate of 4% of the corpus in the first year of retirement. For simplicity, take the 20-year inflation factor as 2.65. What corpus is needed at 60?

The corpus required is Rs 7.95 crore. Inflating Rs 12 lakh by the factor 2.65 gives Rs 31.8 lakh of first-year expenses at age 60, and dividing by the 4% withdrawal rate gives Rs 795 lakh, or Rs 7.95 crore.

  1. ARs 3.00 crore
  2. BRs 7.95 croreCorrect
  3. CRs 3.18 crore
  4. DRs 6.36 crore

Explanation

Expense at 60 = 12 lakh x 2.65 = Rs 31.8 lakh. Corpus = 31.8 lakh / 0.04 = Rs 795 lakh = Rs 7.95 crore. Rs 3.00 crore ignores inflation (12/0.04). Rs 3.18 crore uses 31.8 lakh with a 10% rate. Rs 6.36 crore uses a 5% withdrawal rate.

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