A retirement corpus of Rs 1 crore has long been considered a significant financial milestone by many Indians. However, that amount may no longer be enough to sustain a comfortable retirement for many, particularly in light of growing living expenses, inflation and greater life expectancy. Chartered accountant Nitin Kaushik in a social media post on X writes how a Rs 1 crore corpus is a retirement trap and not a milestone.
According to Kaushik, a retirement corpus of Rs 1 crore could put you below the urban middle class poverty line as the monthly amount you get from it may be insufficient in a few years from now.
With long-term Indian inflation averaging around 6%, the purchasing power of that monthly payout cuts exactly in half every 12 years, opines Kaushik.
How inflation can shrink the value of your retirement income over time?
For many individuals Rs 1 crore sum might seem sufficient now, but over time, inflation can drastically reduce its purchasing power, suggests the CA.
Kaushik explains that the value of money tends to half roughly every 12 years, with long-term inflation in India averaging about 6%.
In a social media post on X, Kaushik writes, “A ONE CRORE rupee corpus is a retirement trap, not a milestone. If you stop working today and pull a standard 6% safe withdrawal rate from Rs 1 crore, you are looking at just Rs 50,000 a month to live on. With long-term Indian inflation averaging around 6%, the purchasing power of that monthly payout cuts exactly in half every twelve years. By year 24 of your retirement, your Rs50,000 allowance will buy what Rs 12,500 buys today, effectively putting you below the urban middle class poverty line. Stop chasing a round number from the last decade and start building toward a realistic target of at least thirty five times your actual annual expenses.”
What the CA wants to say is that you need more money for your expenses every year because of rising inflation.
For example, if someone has a monthly income of Rs 50,000 today, at a 6% annual inflation rate, its value will reduce to about Rs 25,000 in 12 years and around Rs 12,500 in 24 years.
Why inflation could make a Rs 1 crore retirement corpus fall short
If retired individuals are solely relying on a Rs 1 crore corpus, they may find it increasingly difficult to maintain their lifestyle with this amount in a few years from now.
This could be due to rising healthcare costs, daily living expenses and other unforeseen expenditures.
Kaushik further suggests chasing a realistic retirement corpus target rather than chasing a round number from the past estimates.
CA suggests amount you may chase for your retirement corpus
The CA's point is that retirement planning should be based on how much money you actually need to spend every year, rather than chasing a number.
“Stop chasing a round number from the last decade and start building toward a realistic target of at least thirty five times your actual annual expenses,” writes the CA.
A commonly used thumb rule to build a retirement corpus is to target an amount equal to at least 35 times your annual expenses, as per the CA’s suggestion.
What the CA wants you to do is if your family's annual expenses are Rs 10 lakh per year, multiply that by 35 and target a retirement corpus of Rs 3.5 crore. Such a corpus can help you sustain throughout your retirement life.
