A 12% return sounds excellent. After 6% inflation, it is 5.7% real. Here is why inflation-adjusted thinking transforms how you plan, invest, and define success.
Every number in financial planning has two versions: the nominal version (what it says on paper) and the real version (what it actually purchases). Most people plan with nominal numbers and live in a real world. The gap between those two perspectives is inflation — and in India, that gap is significant.
India's long-run CPI inflation averages around 6% annually. This means the purchasing power of your money halves roughly every 12 years. ₹1 lakh today will buy what ₹50,000 buys today in 2038. This is not pessimism — it is arithmetic that any financial plan must account for.
At 6% inflation, a retirement corpus of ₹1 crore that feels comfortable today will feel like ₹25 lakh in 25 years. Your target number needs to be inflation-adjusted — not just your starting guess.
If equity returns 12% and inflation is 6%, your real return is approximately 5.7% (not 6% — the calculation is (1.12)/(1.06) - 1). Over 20 years, this compounds meaningfully. But many 'safe' investments barely keep pace with inflation. A fixed deposit at 7% with 6% inflation gives you a real return of less than 1%.
If you need ₹50,000/month in today's terms for retirement, and retirement is 25 years away, your actual required monthly income in 2051 is ₹50,000 × (1.06)^25 = approximately ₹2.15 lakh/month. Your retirement corpus needs to sustain that, not ₹50,000/month.
Aurelian Capital builds all calculations with a 6% India-specific inflation default. When you enter a target corpus or monthly income, the math runs in real terms and converts back to nominal — so the number you get is what you actually need, not an underestimate that will leave you short in 2050.
Disclaimer
Not financial advice. Run your own numbers with Aurelian Capital.
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