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

Mrs. Iyer retires with expenses of Rs 50,000 per month in today's money. She expects inflation of 6% a year and retires in 10 years. Using (1.06)^10 = 1.79, what is her approximate monthly expense at retirement?

Her monthly expense at retirement would be about Rs 89,500. Compounding 6% inflation over 10 years gives a factor of 1.79, and multiplying that by Rs 50,000 gives the inflated figure, whereas simple interest would understate it.

  1. ARs 80,000
  2. BRs 89,500Correct
  3. CRs 94,000
  4. DRs 1,07,400

Explanation

Future expense = 50,000 x 1.79 = Rs 89,500. Rs 80,000 results from adding 60% simple inflation (50,000 x 1.6 = 80,000), ignoring compounding. Rs 1,07,400 wrongly multiplies by 2.148 (12 years).

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