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

Mr. Iyer needs Rs 60,000 per month today in expenses. He retires in 20 years. Assuming inflation of 6% per annum, the closest estimate of his monthly expense at retirement is (use (1.06)^20 = 3.207):

The monthly expense at retirement is about Rs 1,92,420, found by compounding today's Rs 60,000 at 6% inflation for 20 years, using the factor 3.207. Simple-interest style estimates understate the effect because inflation compounds on previously inflated costs.

  1. ARs 1,92,420Correct
  2. BRs 1,32,000
  3. CRs 3,20,700
  4. DRs 72,000

Explanation

Future expense = 60,000 x 3.207 = Rs 1,92,420. Rs 1,32,000 uses simple inflation (60,000 x 2.2). Rs 3,20,700 uses a wrong multiplication base of 100,000. Rs 72,000 adds only one year of inflation to the amount.

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