NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Planning Basics
Mr. Iyer, aged 40, spends Rs 6,00,000 a year today. He assumes inflation of 5% a year and plans to retire at 60. Using (1.05)^20 = 2.65, what will his first-year expense at retirement approximately be, assuming the same lifestyle?
The first-year expense at retirement is about Rs 15,90,000. Current spending of Rs 6,00,000 is inflated for 20 years at 5%, using a compounding factor of 2.65, so the expense grows to roughly 2.65 times the present amount.
- ARs 12,00,000
- BRs 15,90,000Correct
- CRs 13,25,000
- DRs 18,55,000
Explanation
Future expense = 6,00,000 x 2.65 = Rs 15,90,000. Rs 12,00,000 uses simple doubling, Rs 13,25,000 uses 2.65 on 5,00,000, and Rs 18,55,000 wrongly multiplies by 3.09.
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