Retiring with a corpus of Rs 1 crore today may seem substantial, as it can comfortably cover various retirement goals, such as buying a house, funding a child’s education, or going on an extended vacation. But will this amount be sufficient even after 10, 20, or 30 years?
Inflation erodes the value of money over time, so what seems like a substantial amount today may not be sufficient to meet your post-retirement obligations in the future.
How can inflation lower the value of money?
A bank account balance of Rs 1 crore seems like a big deal today but it may not be sufficient to meet your future financial needs. This is because inflation erodes the value of money over time.
For example, if a car costs Rs 10 lakh today, it will probably cost considerably more in 15 years.
Consider how much you used to spend on food or rent ten or fifteen years ago versus now. The distinction illustrates how inflation reduces the value of money.
How much would Rs 1 crore be worth in 10, 20 or 30 years?
The value of Rs 1 crore will decrease to Rs 55.84 lakh assuming a 6 per cent rate of inflation. This illustrates how long-term investments and savings are affected by inflation.
Twenty years from now, with 6 per cent inflation, the value of Rs 1 crore will only be approximately Rs 31.18 lakh.
Thirty years from now, Rs 1 crore will be around Rs 17.41 lakh
The medium to long-term drop in the value of the Rupee emphasises how crucial smart retirement preparation is. We often make the mistake of basing our financial plans on today’s purchasing power.
If an investment product yields a 6% return, you may not be effectively making any money, as inflation could offset your gains at a similar rate of 6%.
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