For many young investors in India, retirement planning is often framed around a target corpus. In today's times, the figure of Rs 5 crore is considered a “safe” benchmark, since it appears as a substantial sum that could comfortably support a retired lifestyle.
However, inflation changes the entire equation as it shrinks its real value over a long period of time. Inflation steadily erodes the purchasing power of money. This means that what appears like a large amount today may not be nearly enough decades down the line.
Inflation: How It Works?
Assuming that the average inflation rate is about 6%, then the monthly expenses of Rs 50,000 in today's times could balloon to well over Rs 2 lakh in 20 to 25 years from now. Considering the last 20 years, inflation in the country has gone as high as 8-9% and settled in 4-6% range.
If this inflation rate continues over the next 20 years, it changes the scenario completely.
If a person is 40 years old and looking forward to retire at the age of 60, with a corpus of Rs 5 crore at the time of retirement. At this time, Rs 5 crore target looks very large and sufficient enough for him to fulfill his goals, since the individual is looking at it in terms of today's value and needs.
But this is the common mistake that most of the people make.
For many Indian households, especially the middle-class families, Rs 5 crore can be considered a strong retirement corpus. It can be used to cover children's education, wedding, or buying a new house.
Also Read: Can Your SIPs, EPF Really Make You A Rs 5-Crore Investor?
However, the key challenge here is what will be the real value of that Rs 5 crore after 20 years?
Assume that inflation averages 6% on an annual basis for the next 20 years, then the present value of Rs 5 crore would only be around Rs 1.56 crore after 20 years. This means, that Rs 5 crore will only have the purchasing power of about Rs 1.5 crore after 20 years.
In simple terms, if you need Rs 5 crore to meet your retirement and life needs today, then you must have at least Rs 16 crore to do the same after 20 years.
Key Takeaways
While Rs 5 crore retirement corpus might look like a comfortable fund in today's times, inflation could make it insufficient by the time you retire. This means that a more realistic target for a 20 to 25-year retirement in India could be Rs 12–15 crore, depending on your lifestyle and healthcare needs.
Experts often advise people to invest aggressively in growth assets pre-retirement, shift to balanced portfolios post-retirement and keep adjusting for inflation.
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