Building a retirement corpus: inflation is the number most people miss

Ask someone how much they need to retire and the answer usually arrives in today's rupees. That is the problem. The expenses being described are today's expenses, but they will be paid decades from now, with money that buys less.

Step one: inflate the expense, not the corpus

The right starting point is your current monthly household expense - not your income, and not a round number picked from a magazine. That figure is then carried forward at an assumed inflation rate to the year you plan to retire. The result is almost always larger than people expect, because inflation compounds just as investments do.

A household spending a given amount each month today will need materially more each month thirty years from now to maintain the same standard of living. The corpus has to be sized against that future figure.

Step two: the corpus has to last

A retirement corpus is not spent on day one. It stays invested through retirement, earning something, while withdrawals are taken from it - and those withdrawals themselves keep rising with inflation. What matters is the gap between the return earned after retirement and the rate of inflation, sometimes called the real return.

If the post-retirement return and inflation are close, the corpus has to be large enough to fund almost the entire withdrawal period on its own. This is why small changes to the assumed inflation rate move the required corpus so much.

Step three: count what already exists

Existing savings do not stay still either. Provident fund balances, earlier mutual fund investments and other long-term savings continue to grow until retirement. Their projected value at retirement is subtracted from the corpus requirement, and what remains is the gap you are actually solving for.

Step four: convert the gap into a monthly number

A gap expressed as a single large figure is intimidating and hard to act on. Converted into a monthly investment over the years remaining, it becomes a decision you can actually make this month. That is the number worth focusing on.

• Start from actual household expenses, not income
• Apply an inflation assumption you would defend, not the most optimistic one
• Account for a retirement period that may run for decades
• Deduct the projected value of what you already hold
• Review the plan every few years - incomes, expenses and timelines all move

Our retirement calculator lets you test these assumptions yourself and shows the monthly investment implied by the gap. Treat the output as an illustration to start a conversation, not as a forecast.