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

Mr. Sharma retires with annual expenses of Rs 6,00,000 in the first year of retirement, rising at 6% a year. His corpus earns 6% a year, with expenses withdrawn at the start of each year. For 3 years of retirement, the corpus required at the start of retirement is:

The required corpus is Rs 18,00,000. Because inflation and the return are both 6%, and withdrawals are at the start of each year, each year's expense has a present value of Rs 6,00,000 at retirement. Three years therefore need three times that amount.

  1. ARs 17,00,000
  2. BRs 18,00,000Correct
  3. CRs 16,98,000
  4. DRs 18,36,000

Explanation

When the return equals the inflation rate, each year's expense discounted to the start equals the first-year amount for beginning-of-year withdrawals. Year 1: 6,00,000. Year 2: 6,36,000/1.06 = 6,00,000. Year 3: 6,74,160/1.1236 = 6,00,000. Total = Rs 18,00,000. Rs 18,36,000 wrongly adds inflation without discounting year 2 alone, and Rs 17,00,000 and Rs 16,98,000 are unsupported approximations.

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