Most of us make a mistake when planning for retirement – underestimating the impact of inflation. We think that the amount we are saving today will be enough to meet our needs after retirement. But the reality is that inflation reduces the purchasing power of money year after year.
Today, we will understand this through the story of a 30-year-old man who currently earns Rs 1 lakh per month and wants to retire at the age of 60 and maintain the same lifestyle that he is living today. But how much money will be needed to meet his current needs after 30 years? And how to raise that amount? This is the crux of this story.
How much will Rs 1 lakh be worth in 30 years?
Assume that inflation remains at an average of 6% for the next 30 years. This is not an imaginary figure — the average inflation rate in India has been around this much in the last two decades. So, to maintain the purchasing power of Rs 1 lakh today, he will need around Rs 5.75 lakh every month after 30 years.
This means that his ‘target’ at the time of retirement is not just to meet monthly expenses, but also to fight inflation.
How will expenses increase over time?
Today this person is spending Rs 1 lakh a month on rent, groceries, weekend outings and other household needs. He doesn’t have a child right now, but in the coming years, expenses will increase due to having a child, school fees, medical expenses, family responsibilities and inflation.
He expects his salary to increase by an average of 10–12% every year, which will help manage these rising expenses. But the situation changes after retirement — no salary income but expenses remain the same or grow further. This is why it is important to make a solid plan from now on. After retirement, the person needs a pension of Rs 5.75 lakh.
If this person wants to get Rs 5.75 lakh every month for the next 15 years (i.e. till the age of 75) after retiring at the age of 60, then he should have a large amount by the time of retirement.
According to the calculation, if he prepares a retirement corpus of Rs 5 crore and invests it in a mutual fund that gives 12% annual return, then a pension of about Rs 5,80,500 can be withdrawn every month through SWP (Systematic Withdrawal Plan).
What is SWP and how does it work?
SWP i.e. Systematic Withdrawal Plan is a mutual fund plan in which you invest a large amount and keep withdrawing a fixed amount every month/quarter/year.
How does it help?
After retirement, SWP gives you a fixed cash flow which works like a pension.
The big advantage – your money stays invested in the mutual fund and keeps generating returns, while you withdraw a portion every month for expenses.
In this example, a fund with 12% annual return can yield Rs 5.8 lakh per month for 15 years and help fight inflation even after retirement.
Now the question – how to build a Rs 5 crore corpus in 30 years?
Here comes SIP (Systematic Investment Plan)
If this person starts investing now and puts in just Rs 6,270 every month, and keeps increasing this amount by 10% every year (Step-Up SIP), then in 30 years he can create a corpus of Rs 5 crore – provided the investment gets a return of 12% CAGR (Compound Annual Growth Rate).
SIP – How Step-Up will work
First year: Rs 6,270/month
Second year: Rs 6,897/month (10% increase)
Third year: Rs 7,586/month … and so on, increasing by 10% every year.
It is reasonable to expect a 12% CAGR return, as many mutual fund categories like midcap, largecap, smallcap, flexi-cap have given higher returns than this in the past.
Why mutual funds?
High return potential – 12–15% average return possible in the long term.
Inflation-beating power – Higher returns than instruments like fixed deposits or PPF.
Flexibility – Start with a SIP and increase the amount later.
Liquidity – Easy to sell investments when needed.
Impact of inflation – why Rs 1 lakh today won’t be enough tomorrow
Inflation erodes the purchasing power of money slowly. Here’s a simple example:
Things you can buy for Rs 1 lakh today will cost you Rs 5.75 lakh 30 years from now.
If you have saved Rs 1 crore for retirement but haven’t thought about the impact of inflation, this amount can get depleted very quickly.
A common mistake people make is that they only calculate their today’s expenses after retirement and ignore inflation.
Can PPF and NPS be better options?
Though we have focused on SIP–SWP in this story, there are other good retirement instruments available in India:
PPF (Public Provident Fund) – Safe, tax-free, but 7–8% returns, which are limited in beating inflation.
NPS (National Pension System) – A mix of market and debt, good for long term, also offers tax benefits.
Still, if your goal is to get faster-than-inflation returns, equity mutual funds may be a better option—provided you stay invested for a long period.
The ultimate plan – Secure life from 30 to 75 years
Start SIP now – Rs 6,270/month
Increase by 10% every year – Increase investment as salary increases.
After 30 years – Rs 5 crore corpus ready
Start SWP after retirement – Withdraw Rs 5.8 lakh/month for 15 years assuming 12% returns.
What is the lesson?
Inflation must be made a part of retirement planning.
Starting small can have a big impact in the long run—the magic of compounding.
Continue investing without being afraid of market fluctuations.
If you want to avoid financial struggles after retirement, start planning today. Remember, time and discipline are your biggest allies.