Retirement Planning: Most people invest to secure their future. But investment should always be done after calculating what will be the value of your accumulated capital in the future. The way inflation is increasing rapidly, you have to shell out a substantial money for the things that you can afford at cheap rates today.
Likewise, a retirement corpus that may look attractive today may turn out to be ordinary till you appraoch your retirement life.
So, it is necessary to know the pace of inflation, which means to get an idea of the value of your investments in the future.
You can know this through a formula called- Rule of 70.
What is Rule of 70 and how does it work?
Through Rule of 70, you can easily find out in how many years the value of your savings will be halved.
For this, you should know about the current inflation rate.
When you divide the current inflation rate by 70, the number that comes out will tell you in how many years the value of your total accumulated capital will reduce to half.
Rule of 70 Calculation
Suppose that today your total deposited amount is Rs 1 crore.
At present, the inflation rate is 5 per cent, so you will have to divide the current inflation rate by 70. 70/5 = 14 i.e. in 14 years the value of your savings will be halved.
That means the value of Rs 1 crore will become equal to Rs 50 lakh in 14 years.
What does expert say?
AK Nigam, Director of BPN Fincap, says, through the ‘Rule of 70’ we can easily understand how fast inflation is eating away the value of our investments.
Therefore, we should always keep some things in mind before investing.
Whatever product you are choosing for investment, make sure to assess the current returns and inflation rates.
Just for the sake of safe investment, one should not invest in a place where the inflation rate is much higher than the returns.
However, it is true that investment decision should be taken keeping in mind the goal, risk appetite and age.
Nigam says, one should also press a ‘refresh’ button from time to time in the investment portfolio.
This means that the portfolio must be reviewed from time to time. Apart from this, as income increases, investment should also increase.