NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Planning Basics
Ms. Kapoor retires with a corpus of Rs 1,20,00,000 and wants to withdraw a constant 4% of the initial corpus in year one, increasing the withdrawal each year for inflation (a fixed-percentage initial withdrawal rule). What is her first-year withdrawal?
The first-year withdrawal is Rs 4,80,000, being 4% of the initial corpus of Rs 1,20,00,000. In later years this amount is raised by inflation rather than recalculated on the changing corpus balance, which is how the initial withdrawal rule works.
- ARs 3,00,000
- BRs 4,80,000Correct
- CRs 6,00,000
- DRs 4,00,000
Explanation
4% of Rs 1,20,00,000 = Rs 4,80,000. Rs 3,00,000 would be 2.5%, Rs 6,00,000 would be 5%, and Rs 4,00,000 would be about 3.33%.
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