One of the biggest mistakes people make when planning for retirement is ignoring the silent wealth killer — inflation. Many believe that the amount they’re saving today will be enough to meet their needs decades later. But in reality, the value of money erodes year after year, and your retirement dreams can take a serious hit if you don’t account for it.
Let’s understand this with the story of a 30-year-old professional who earns ₹1 lakh a month and wants to retire at 60 while maintaining his current lifestyle. The big question — how much will he actually need 30 years from now?
Inflation: The Lifestyle Disruptor
Assume inflation averages 6% per year for the next three decades — a realistic figure given India’s historical trends. That means his ₹1 lakh monthly expense today will swell to about ₹5.75 lakh per month by the time he turns 60.
So his target isn’t just to cover day-to-day expenses but also to keep pace with inflation.
Why Expenses Don’t Retire With You
Currently, he spends ₹1 lakh a month on rent, groceries, weekend outings, and household needs. Over the years, additional costs like raising children, education fees, healthcare, and family responsibilities will push his expenses higher.
While salary hikes during his working years (10–12% annually) will offset some of this, retirement changes everything — no income, but expenses continue. This is why he’ll need a pension of ₹5.75 lakh per month after 60.
The Math: Building a ₹5 Crore Corpus
If he wants to draw ₹5.75 lakh per month for 15 years post-retirement, he’ll need about ₹5 crore invested at retirement.
Here’s how it works: By investing that ₹5 crore in a mutual fund with a 12% annual return and using a Systematic Withdrawal Plan (SWP), he can withdraw around ₹5.8 lakh per month for 15 years — all while keeping his money invested and earning returns.
What is SWP?
A Systematic Withdrawal Plan lets you invest a lump sum in a mutual fund and withdraw a fixed amount periodically. It provides a steady cash flow, like a pension, while your remaining investment continues to grow.
The Road to ₹5 Crore: Step-Up SIP Strategy
Starting now, he can reach ₹5 crore by investing just ₹6,270 per month in a Systematic Investment Plan (SIP), increasing the contribution by 10% each year. Assuming a 12% annualized return (CAGR), the target can be achieved in 30 years.
Example:
- Year 1: ₹6,270/month
- Year 2: ₹6,897/month
- Year 3: ₹7,586/month, and so on.
Many equity mutual funds — especially midcap, smallcap, largecap, and flexi-cap categories — have delivered such returns in the past.
Why Equity Mutual Funds Win for Retirement
- High return potential: 12–15% over the long term.
- Inflation-beating: Outpaces returns from fixed deposits or PPF.
- Flexibility: Start small and increase investments later.
- Liquidity: Easy to withdraw when needed.
Other Options: PPF & NPS
- PPF: Safe, tax-free, but limited to 7–8% returns.
- NPS: Balanced exposure to equity and debt, with tax benefits.
Still, if your goal is to outpace inflation aggressively, equity mutual funds may be the better choice — provided you commit for the long haul. Retirement planning is not just about saving — it’s about protecting your future from inflation. Start early, invest consistently, increase your contribution with income growth, and let compounding do its magic.
Remember: Time and discipline are the two biggest allies in securing a financially stress-free retirement.
