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
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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