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

Mrs. Sunita Mehra retires with a corpus of Rs 1,00,00,000 and plans an initial annual withdrawal of 4% of the corpus, to be increased each year by inflation. If inflation is 6% a year, what is her planned withdrawal in the second year of retirement (assume the withdrawal is made at the start of each year and the increase applies from year 2)?

The second-year withdrawal is Rs 4,24,000. The first-year withdrawal is 4% of Rs 1 crore, which is Rs 4,00,000, and raising it by 6% inflation gives Rs 4,24,000. This is the inflation-adjusted withdrawal rule.

  1. ARs 4,24,000Correct
  2. BRs 4,00,000
  3. CRs 4,40,000
  4. DRs 4,06,000

Explanation

Year 1 withdrawal = 4% of Rs 1,00,00,000 = Rs 4,00,000. Year 2 = 4,00,000 x 1.06 = Rs 4,24,000. Rs 4,00,000 ignores inflation, while Rs 4,06,000 wrongly applies 4% x 1.5%-type scaling and Rs 4,40,000 wrongly adds a 10% rise.

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