Struggling with retirement calculations? These 4 rules can help you estimate the future corpus

Compounding and discounting are two important concepts in personal finance. Compounding helps investors estimate how much their money can grow over time, while discounting helps calculate what future money or cash flows are worth in today’s terms.

The Rule of 72 helps to calculate the number of years it will take to double the money. For this, simply take 72 and divide it by the interest rate. For example, at a 15% interest rate, it will take 4.8 years (or close to 5 years) to double the money.

If you want to know how long it will take to triple your money? Use the rule of 114. It works in the same way as the rule of 72. Simply divide 114 by your interest rate to determine how long it will take for your money to triple. At a 10% interest rate, it will take 11.4 years to triple your money.

The Rule of 144 provides an estimate of how long it will take to quadruple your investment. At a 10% interest rate, it will take 14.4 years for an investment to grow 4 times.

The rule is useful for predicting your future buying power. The rule of 70 helps you estimate how much your money will be worth in the future. Simply divide 70 by the current inflation rate. This will tell you how long it will take for the value of the rupee to be cut in half.
At a 4% inflation rate, the rupee will lose half of its purchasing power in 17.5 years. This is especially important for retirement plans, as it may affect the way one chooses to set up monthly withdrawals.

Compounding works by adding interest back to the principal. The subsequent interest amount is then calculated on the new principal amount. By continuously reinvesting the earnings, compounding allows the value of an investment to grow at an increasing rate.
The investments can be made lumpsum (fixed deposits, National Saving Certificates) or one-time in stocks or mutual funds, or can be spread over time (recurring deposit or mutual fund SIPs)

Discounting is the inverse of compounding, which translates the money receivable in the future to its present value. The rate used to convert the future money into its present value is termed the discounting rate. The concept is based on the premise that time reduces the value of money because of inflation, uncertainty, and opportunity cost (availability of investment options).

Inflation or the general increase in the price level can jeopardise the calculations, especially for long-term (retirement) goals. This is because higher inflation reduces the purchasing power of money and creates an income-expenditure mismatch.