Why a 9% personal inflation rate could change your retirement corpus calculations
Equity can fall 30-40% in a bad year, so money needed in the next few years must never sit there. A conservative investor may hold less. Few can afford to hold none: avoiding equity swaps the risk of a temporary fall for the certainty of losing pu...
It is 6:15 on the first morning of November in Vidyanagar, Hubballi. Shankar Kulkarni, 61, a retired school teacher, hands the Nandini booth boy the same Rs.28 he has paid for two years for a half-litre of curd. “Sir, Rs.34 now,” the boy says, without looking up. Shankar pays the extra Rs.6. Walking home, he does what retired teachers do: multiply.
With Rs.6 a day on curd and Rs.8 more on a litre of milk, that is Rs.420 a month before a single vegetable is bought. Shankar isn’t alone. The Nandini hike, ahead of Diwali, comes amid costlier LPG, petrol, diesel and groceries. For working families, it is a squeeze. For retirees, it is worse: their corpus is their salary, and each rupee of price rise is paid from capital that will never be replaced.
The bill nobody voted for
Since the US-Israel-Iran war disrupted shipping through the Strait of Hormuz in late February, India’s crude basket has jumped from about $69 a barrel to $113-114.
The bill landed in our kitchens. Domestic LPG cylinders were hiked rs.60 on 7 March and Rs.29 on 7 June. Pump prices, frozen for 49 months, rose four times in two weeks after 15 May (see table 1). Retail inflation rose to 5.54% in September from 3.48% in April; food inflation hit 7.74%. SBI Research expects Consumer Price Index (CPI) inflation to cross 6.5% in October and November. In many households, the grocery bill is up 35 40% and the vegetable bill close to 50%.
The CPI averages the whole country’s spending, including cheaper mobile data and electronics that go on sale. Shankar and his wife Sumitra don’t buy a new phone each month. They buy milk, curd, vegetables, dal, oil, gas and medicines: those prices are rising fastest. Since February, there has been a 28.2% rise (see table 2) in their monthly essentials. Official CPI says 5.54%. Shankar’s kitchen says five times that.
The extra Rs.5,128 a month is about Rs.61,500 a year. At a 4 safe% withdrawal rate, funding that for life needs roughly Rs.15.4 lakh of additional corpus that nobody gave him. This article plans with 9%. That is our working estimate of a retiree’s personal inflation, not an official figure; the highest published numbers are 7.74% (food) and SBI Research’s 6.8% peak forecast. But 9% is closer to a retiree’s kitchen than the head line 5.54%.
Monthly impact on a retired couple’s bill
What it does to a Rs.1 crore corpus
Like most retirees, Shankar keeps the bulk of his money in fixed deposits (FDs). The passbook number never falls, but safety in rupees is not safety in purchasing power. A senior citizen FD at 7.5% yields 5.25% after tax in the 30% bracket. Against 5.54% CPI, that is already negative. Against 9% personal inflation, it is –3.44% a year. The corpus is not growing. It is shrinking politely.
When Shankar retired last year with Rs.1 crore, the plan was to withdraw Rs.68,000 every month for expenses. The corpus grows at 6% after tax. With inflation at 6%, the corpus lasts till age 85. Most plans assume a smooth 6-7%, but a retiree lives year by year, and Rs.54 milk will not return to Rs.46.
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Here is the same plan if inflation runs higher—just three years of 9% inflation takes the money from age 77 to 75. If 9% becomes normal, it runs out at 74: three years in his mid-seven ties with no income, because the plan assumed a straight line.
Which Lakshmi are we worshipping?
Dhanteras was on 6 November and Lakshmi Puja on 8 November. Sumitra did what she has done for 40 years: clean the cupboard, take out the FD receipts, and place them before the god dess with a silver coin. But Lakshmi was never a number on a passbook. She is the ability to live well. A Rs.10 lakh FD that buys less every year is Lakshmi quietly leaving by the back door while we light lamps at the front.
Inflation punishes lenders and rewards owners. An FD pays a fixed rate while prices rise. Companies can hike prices, and over long periods, the shares that own them tend to keep pace with inflation or beat it. Long-term equity gains are taxed at 12.5% (first Rs.1.25 lakh a year exempt); FD interest at your slab, up to 30%.
Equity can fall 30-40% in a bad year, so money needed in the next few years must never sit there. A conservative investor may hold less. Few can afford to hold none: avoiding equity swaps the risk of a temporary fall for the certainty of losing purchasing power.
Four fixes before the first diya
Calculate your own inflation: Compare your kitchen, utility and healthcare spending for October 2025 with October 2026. If it is 9% or more, plan with that, not 5.54%.
Stress-test for shocks, not averages: Re-run your plan with three years of 9-10% inflation before it settles to 7%. If the corpus runs out before age 85, your withdrawals are too high or your money is in the wrong place.
Move from all-FD to three buckets: Years 1-3: essential expenses in Senior Citizens’ Savings Schemes and short-term FDs. Years 4-6: high-quality debt to refill bucket one. Years 7 onwards: low-cost, broad-market in dex funds for growth.
Get advice not tied to a product: ‘Guaranteed income’ plans promise fixed sums and say nothing about what that money will buy in 15 years. Consult a fee-only Sebi registered adviser for recommendations.
Prices, once raised, rarely come back down. So this Diwali, Shankar will do a different kind of accounting. Not “how much do we have?” but “how many years will it last, at today’s prices?” It is the most meaningful puja any retired family can do. If the answer is that wealth is not growing faster than ex penses, Lakshmi is not staying. She is only visiting. The good news: at 61, Shankar still has time to fix it. At 71, he would have far less. If you see your parents, or yourself, in Shankar, start this Diwali.
Disclaimer: This article is for educational purposes only and is not investment advice. The characters are illustrative. Corpus projections assume a 6% post-tax return and are not guaranteed.
The Author is Founder & CIO, Sukhanidhi Investment Advisors
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
