For many Indians, a retirement corpus of Rs 1 crore is seen as the ultimate financial milestone, an amount believed to guarantee comfort and security. That assumption may hold true today. But the real
question is what that Rs 1 crore will be worth a decade from now. This is a reality many investors overlook, often trapping themselves in a cycle where the goalpost keeps moving and retirement comfort remains elusive.
At the heart of this problem lies inflation, the silent force that steadily erodes the value of money over time. Simply put, what Rs 100 buys today will not buy the same basket of goods 10 years later. As prices rise year after year, the purchasing power of money falls. For instance, if inflation averages 5% annually, an item priced at Rs 100 today would cost more than Rs 150 after ten years.
The impact of this is visible all around. Take real estate in the Delhi-NCR region as an example. A 2BHK flat in Noida priced at Rs 1 crore today could easily command Rs 2 crore ten years later. The flat itself may remain unchanged in size and location, but inflation pushes prices up while simultaneously reducing the value of money. The same principle applies across essentials like housing, healthcare, education, food and transportation all become progressively more expensive with time.
The Reserve Bank of India considers inflation in the range of 4-6% to be manageable. Assuming an average inflation rate of 5%, the implications for long-term savings are stark. Over 10 years, the purchasing power of Rs 1 crore shrinks to about Rs 61.37 lakh. In effect, something that costs Rs 1 crore today would require nearly Rs 1.63 crore after a decade.
This is where investment choices become critical. Traditional fixed deposits, which typically offer returns of around 7%, appear safe but deliver limited real growth. After adjusting for 5% inflation, the real return is barely 2%. An investment of Rs 1 crore in a fixed deposit growing at 7% annually would amount to roughly Rs 2 crore after 10 years. However, once inflation is factored in, the real value of that corpus drops sharply, leaving purchasing power equivalent to just over Rs 37 lakh in today’s terms.
By contrast, investments that generate higher long-term returns offer a better chance of beating inflation. Equity-oriented mutual funds, with average annual returns in the range of 10-11 per cent, significantly alter the outcome. The same Rs 1 crore invested at these rates could grow to nearly Rs 2.84 crore in ten years. Even after adjusting for inflation, the real value of this corpus would still be about Rs 1.21 crore, comfortably ahead of the original investment.
So, retirement planning based solely on reaching a nominal figure like Rs 1 crore can be misleading. What truly matters is the future purchasing power of that money. Only those who account for inflation and aim for returns that outpace rising costs are likely to break the cycle, and secure a genuinely comfortable retirement.
