Value of Rs 1 crore after 10 years
In India, Rs 1 crore is still considered a big and life-changing amount. Most people think that if this much amount is accumulated by retirement, life will pass smoothly. But there is a major flaw in this thinking, which is often ignored and that is inflation. The power of money decreases with time and this fact makes future planning difficult.
How does inflation impact silently?
Inflation means goods and services gradually becoming expensive. The same item which is available for Rs 100 today may cost Rs 150 or Rs 200 after a few years. Its direct impact is on your pocket. Inflation in India is measured by CPI i.e. Consumer Price Index, which includes everything from food to housing, treatment and transport. Inflation of 46% may seem small on paper, but in the long run its impact is huge.
What will be the value of Rs 1 crore after 10 years?
If it is assumed that the average inflation rate remains 5% annually, then the purchasing power of today’s Rs 1 crore will be around Rs 60-62 lakh after 10 years. This means that the thing which requires Rs 1 crore today may cost around Rs 1.6 crore after 10 years. This clearly means that the amount will remain the same, but its strength will reduce.
For example, a few years ago in big cities a good flat was available for Rs 1 crore, today the same flat is being sold at double the price. Neither the flat nor the location has changed, only the value of money has changed and this is the real picture of inflation.
Why is this understanding important in retirement planning?
Suppose you are 50 years old and planning to retire at the age of 60. Today you think Rs 1 crore will be enough. But by the time of retirement, medical expenses, daily needs and lifestyle expenses would have increased significantly. If inflation is not kept in mind, you may face shortage of money after retirement.
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Why just saving is not enough
Many people rely on FD or savings account. These are safe, but their returns are often less than inflation. The result is that money appears to increase, but in reality its value keeps decreasing.
Ways to beat inflation
Investment options like equity mutual funds, index funds and flexi-cap funds have the potential to beat inflation in the long run. NPS is a good option for retirement, while hybrid funds strike a balance between risk and stability. Gold also provides support in uncertain times.