Growing the corpus

How to choose return and inflation assumptions you can defend

Every calculator on this site is only as good as two numbers you supply. Here is how to choose them without quietly rigging the answer.

A retirement projection is a conditional statement: if returns average this and inflation averages that, then the arithmetic produces this outcome. The maths is exact. The conditions are estimates. Mistaking the reliability of the first for the reliability of the second is the most common way a careful-looking plan turns out to be worthless.

The gap matters more than either number

What actually drives a long plan is the real return, the return above inflation. A 12% return with 7% inflation and a 7% return with 2% inflation are roughly the same plan in terms of what you can eventually buy, even though the headline corpus figures look completely different.

This is why cross-country comparisons of "expected return" mislead so easily, and it is a good consistency check on your own inputs. If you have entered a high return because equities in your market have historically returned a lot, but entered inflation at a developed-market level, you have quietly assumed a real return that no market has sustained. Check the difference, not the levels.

Choosing a return assumption

• Match the assumption to the portfolio you will actually hold. A long-run equity figure does not apply to a portfolio that is 40% in bonds and deposits. Blend it: a 60/40 portfolio should use something between the two, not the equity number.
• Use different rates before and after retirement. Most people de-risk at retirement. The Retirement Calculator takes separate pre- and post-retirement returns precisely so you can model that, and it is worth using rather than leaving both the same.
• Subtract costs. Whatever figure you start from, fund expense ratios and platform charges come out of it before you see it. None of the calculators deducts them, so build them into your input.
• Prefer the conservative end. Being wrong in the pessimistic direction leaves you with a surplus. Being wrong in the optimistic direction leaves you short at an age when you can no longer fix it. The two costs are not symmetric.

Choosing an inflation assumption

Start from long-run consumer inflation in the country whose prices you will pay: historically in the region of 5–7% in India, and closer to 2–3% in the US, UK and much of Europe. Then adjust upward if your spending is concentrated in categories that have consistently outpaced the headline figure: healthcare above all, plus education and personal services.

One convention worth keeping straight: in the SWP and 2-Bucket calculators, withdrawal growth and inflation are separate inputs. Withdrawal growth escalates the income you actually take; inflation is used to discount future balances back into today’s money. Setting withdrawal growth below inflation models a plan that gradually accepts a lower standard of living. That is sometimes a deliberate choice, but it should be a deliberate one.

Stress-testing, in three runs

A single projection tells you what happens if you are right. Three tell you whether it matters:

1. Base case. Your honest best estimate.
2. Pessimistic. Return two points lower, inflation two points higher. This is not a disaster scenario; it is an ordinary decade.
3. Timing shock. Keep the averages, but ask what a poor first five years would do. That is the subject of sequence-of-returns risk.

If the plan only survives the base case, the useful conclusion is not that the plan is wrong. It is that you now know exactly which lever (retirement date, spending, or contribution) has to move, and roughly by how much.

A note on precision

RetirePeace carries full precision through every calculation and rounds only for display, so the arithmetic is not the weak link. But a projection that reads ₹8,04,17,326 is not accurate to the rupee, or to the lakh, or realistically to the crore at a thirty-year horizon. Read the leading digits and the direction of travel; treat the rest as an artefact of the arithmetic.

The most valuable thing any of these calculators produces is not a number. It is the sensitivity: which input, when moved a little, moves the answer a lot. That tells you where to concentrate your effort, and it stays true even when every one of your assumptions turns out to be somewhat wrong.

This guide is educational and general. It is not financial, investment, tax or legal advice, and it takes no account of your circumstances. Every figure quoted is an illustration produced by the arithmetic described, not a forecast or a guarantee. Investment returns, inflation and market conditions are uncertain and will differ from any assumption used here. See the full disclaimer.