An amount of Rs 5 crore might seem really huge today, but inflation can quietly shrink its real value over time. Most people think that if they accumulate this much money by retirement, their life will be comfortable. But the real question isn’t how big the amount seems, but what its real value will be after 20 years. This is where inflation plays a major role.
How inflation keeps eroding value of rupee
Inflation gradually erodes the purchasing power of money. Things that cost Rs 100 today will cost Rs 200 or Rs 300 a few years later. If we look at the last 20 years (approximately 2005 to 2025), inflation in India has been as high as 8-9% and later settled in the 4-6% range. Let’s assume the average inflation rate is around 6%.
Now, if this rate continues for the next 20 years, the picture changes completely.
Let’s understand this with an example.
Suppose a person is 40 years old today and wants to retire at the age of 60. His goal is to have a corpus of Rs 5 crore at the time of retirement. For this, he is investing money in various savings and investment plans. Rs 5 crore seems very large and “sufficient” to him today because he is looking at it in terms of today’s value and today’s needs. This is the mistake most of us make.
In today’s time, especially for a middle-class family, Rs 5 crore can be considered a strong retirement corpus. This amount can cover major expenses.
For example: A good 2 or 3 BHK house in a Tier-1 city for Rs 1 to 1.5 crore, Rs 1 to 1.5 crore for a child’s education abroad, and Rs 50 lakh to Rs 1 crore for a child’s wedding.
Even after all these major expenses, let’s say about Rs 1 crore remains. With this remaining money, a person could invest in an annuity or a safe investment and expect a regular monthly income of Rs 5-6 lakh. This plan seems quite comfortable by today’s standards.
But now, let’s fast forward 20 years. If this same person retires with Rs 5 crore in 20 years, the question arises — what will the real value of that Rs 5 crore be in today’s money?
What will be the value of Rs 5 crore after 20 years?
If we assume that inflation averages 6% annually for the next 20 years, the calculation works out as follows:
Retirement corpus target: Rs 5 crore
Investment period: 20 years
Inflation rate: 6% per annum
According to this calculation, the present value of Rs 5 crore after 20 years will be only about Rs 1.56 crore.
This means that the Rs 5 crore that seems like a large sum today will have the purchasing power of only about Rs 1.5 crore in 20 years.
Let’s understand this in simpler terms.
If you need Rs 5 crore today to meet your retirement and life needs, you will need approximately Rs 16 crore to do the same 20 years from now. The reason is simple—inflation.
Therefore, the biggest mistake in retirement planning is that we look at the amount in nominal value, not its real value. A target of Rs 5 crore sounds good, but if you ignore inflation, the same amount may fall short at the time of retirement.
The conclusion is clear—
When setting a retirement goal, it is crucial to understand not just “how much money,” but “what the value of that money will be in the future.” Only by considering inflation can you determine the correct retirement corpus; otherwise, a figure that looks large on paper may prove insufficient in real life.