Recently when reading your magazine, I came across an article where you had mentioned the need to factor inflation when setting in long-term financial goals like retirement. Why is this necessary?
Bhaskar Acharya, Bangalore
Your observation has been right about us mentioning about the need to factor inflation when planning for long-term financial goals. Let us understand this with an example; say you think you need Rs 1 crore 20 years from now, based on today’s cost of living – it will not be the same. Depending on the prevailing inflation, the need will go up from Rs 1 crore after 20 years. For instance, at 7 per cent inflation, the worth of Rs 1 crore after 20 years goes down to Rs 25.84 lakh or a fourth of what you think is enough. It is for this reason that you need to be careful to include inflation when investing towards long-term goals.
