Is One Crore Enough to Retire?

Recently a reader has asked me that, “Is One crore Enough to Retire?”

Well, the answer is – Of course Yes. One Crore is more than enough to retire if you are NO MORE after 2020. In other words, today is August 2009 and if you are going to live for only next 10 years than 1 Crore if enough to retire.

But if you think that you are going to live beyond 2020 than 1 Crore rupees is not at all enough.

Do you know Why? Well, It is Because of Inflation & Tax.

Both the Inflation & Tax are the silent Money Killers. And both of these factors erode the purchasing power (Value) of your Money very silently without noticing by you over the time.

See this is how it works. Say for Example, Inflation is 10% per year and you have Rs.100 in your pocket today which earn 8 per annum interest rate than after 1 year, you will have Rs.108 in your Bank Account but the purchasing power of that Rs.108 will be that of Today’s Rs.98 only. Thus Inflation has eroded Rs.2 Value of your Money without noticing you.

Actual Return = Return offered by Asset – Inflation – Tax

So in our scenario Actual Return = 8% – 10% = –2% (Negative Return) and on the top of this it is taxable.

Now let us discuss the real Scenario. Today you have Rs.1 Crore right? Now you want to retire so you will invest this money in the Bonds or Fixed Deposits which will give you 8% per Annum return. So you will earn Rs. 8 Lakh per Annum from this Rs.1 Crore from today right?

Now you will have a Cashflow of Rs.8 Lakhs per Annum every year. But remember it is taxable at the rate of 30%. So you will have to pay Rs.2,40,000 tax from this Rs.8 Lacs. So you will have Rs.5,60,000 on your hand after deducting the tax right?…. (Well, Actually this is the gross tax deduction example because Tax-Free Bonds offer 6.5% return per annum. So In reality if you have Rs.1 Crore than you will have Rs.6,50,000 post-tax return).

Now you have Rs.6.5 Lakhs of Post-Tax Income for rest of your life. But suppose if Inflation is 5% per Annum than the purchasing power of your money will be reduced every year and after 2020, you will have to again go back to work if you have just Rs.1 Crore in FDs or Bonds because Rs.6.5 Lakhs of Income will not be able to maintain your today’s life style.

But if you have Invested this Rs.1 Crore in your own Business than even after 50 years from today also, you will have a enough cashflow to maintain your life style. So it is advisable to invest this money in your own Business rather than in Bonds and FDs.