POSTED BY January 9, 2013 4:22 pm COMMENTS (3)

ONHi,

I was just trying out some “math” and trying to arrive at some figures. However, i got confused and not sure if was doing it right! Can you please help me out?

1. Finding a Future Value of Current Expense.

Assume that i have an expense of 2Lakhs per year, Then how much would it be considering –

Inflation: 8%

Number of Years to Retire : 25

Present Value : -200000 (-ve so that i get a positive value in excel)

Future Value =FV(8%,25,,-200000). I get a value of 13,69,695.04. So a Expense of 2L will be 13.6L after 25 years. Is this correct?

2. Assuming i would need the above value (13.6Laks) for 10 Years, what is the corpus required? Considering

Real Rate of Return = (Rate of Return/Rate of Inflation) – 1 * 100

I Considered, Rate of Return = 10%, Inflation = 8%, so real rate of return = 1.85%

So Corpus Required = FV(185/100, 10, 13,69,695.04,,1). I got a value of 1,51,72,459.78. Around 1.5Crore. So i would need a corpus 1.5Crore then it would last me 10 years while withdrawing 13.6Lakhs per year. Is this right?

3. How much do i need to SIP to generate a corpus of 1.5Crore.

Assuming Rate of Return = 12%

Years of Investment = 25

Corpus Required = 1,51,72,459.78

Using Excel, =PMT(12%/12, 25*12, ,-1,51,72,459.78). I got a value of 8,075.41. This is the amount i need to SIP every month. Is this correct?

4. Finally, I tried to verify if this correct using the FV forumla in Excel,

=FV(12%, 25, 8075.41*12). This is to check if can generate a Corpus of 1.5Cr assuming i SIP 8K per month of the next 25 years with a Rate of return = 12%. I got a value 1,29,20,710.52. Which is like 30Lakhs short of 1.5Cr!!

What am i doing wrong here? Any help please! Am i even doing it right or is the whole thing a waste of time?

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thanks

Ashal

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1. for inflation

FV(inflation,years,0,-present value) so what you did is right

or FV = PV*(1+inflation)^years

2. I think this is where you made the mistake

net return = (1+return)/(1+inflation) -1

corpus =PV(net return, years,-FV,,1)

3. PMT(return/12,years*12,,-corpus)

If you send me an email I can send you a calculator where this is nicely explained