Points to Remember

• In case of calculating FV of your investments, you will always use Nominal rate of return as the
compounding factor
• In case of retirement, if the amount is already adjusted for inflation, you take the amount as is. In case if
the sum says that the expenses are current expenses, then you would adjust these expenses for inflation to
calculate the PV of the retirement corpus
• In case of calculating the PV of the retirement corpus or amount to be withdrawn post retirement for
expenses, if Inflation rate is given, then you will always use Real rate of Return as the discounting factor
• In case of calculating Inflation adjusted expenses, always take into account number of years as Retirement
age - Current age. However, to calculate the PV of Retirement corpus, number of year will be Life
expectancy minus the retirement age
• Whenever you are calculating RC and if inflation is given then you would always inflate your current
expenses and take Real rate of return as the discounting factor to calculate the present value of the
retirement corpus.
• For calculation of PMT or even if you are to calculate the FV of your investments, you will always use
Nominal rate of return.
• Whenever you are calculating PV of estate, you will always use Nominal rate of return as the discounting
factor. The reason to calculate the PV of estate is so that I will not account for this amount when I am
calculating the annuity to be withdrawn for my retirement expenses. This PV needs to be kept in the corpus
so that it grows to the required amount of estate till life expectancy. NPER for calculating PV of estate = Life
Expectancy - Retirement age
• At the time of inflating your current expenses, you take the difference between the retirement age and
current age as number of years. In case of calculating the PV of the retirement corpus, you take the
difference between the life expectancy and retirement age as your number of years
• In order to calculate retirement corpus or to calculate amount to be withdrawn post retirement, always
use Real rate of return if inflation is given.
• For money back policies, if the term is 20 years then there is a payout of 20% of the sum assured at the
end of 5th, 10th and 15th policy year. On Maturity you get the remaining 40% of SA + Accrued bonuses.
Death Benefit = 100% of SA + Accrued Bonuses. In case of 25 year policy term, you get payouts of 20% of
Sum Assured at the end of 5th, 10th, 15th and 20th policy year. On maturity you get the remaining 20% of
SA + Accrued bonuses. Death Benefit again is 100% of SA+ Accrued bonuses
• If cash balance is given and no investments are made form that balance then the same should be taken as
is. Cash is never inflated
• If present investments are given and if the sum also talks about making monthly, semi-annual or quarterly
investments, then you should grow the present investments by simple FV formula and use FVAF formula for
calculating the FV of the annuity
• Never take APR for loan. For loan you always divide loan rate by 12
• For Life Insurance Cover calculation, you never inflate expenses but you will always take Real Rate of
Return for calculating PV of Life Cover. Nper = Retirement age - Current age
Retirement Planning

1) Scenario 1 – I do not want to leave Estate

Step 1: Inflate Current expenses, where nper = RA – CA
Step 2: Calculate PV at Retirement where R = Real rate of Return, nper = Life Expectancy – RA, pmt =
Inflation adjusted expenses calculated in step 1
2) Scenario 2 = I want to leave an estate of 500000
Step 1: Inflate Current expenses, where nper = RA – CA
Step 2: Calculate PV at Retirement where R = Real rate of Return, nper = Life Expectancy – RA, pmt =
Inflation adjusted expenses calculated in step 1
Step 3: calculate PV of estate where nper = LE – RA, rate = nominal rate
If the question is how much you can withdraw each year post retirement then you will deduct PV of
estate from PV of RC. Then the amount to be with drawn each year will be calculated such that rate
= real rate of return, nper = LE – RA, PMT = PV of RC – PV of estate
If the question asks how much you need to invest from today in order to achieve the RC and you
have been given the amount of estate to be left at LE, then you ADD PV of Estate to PV of RC and
together this will be FV for your calculation of PMT