Understanding retirement projections
Why a fixed 12% retirement return can mislead
A fixed return is useful for exploring an assumption. It cannot tell you which returns will arrive, in what order, or how much you will keep after costs and taxes. During retirement withdrawals, the order itself can change the money left.
Same returns, different money left: a worked example
Both hypothetical portfolios start with ₹100 lakh. Each has one year of −20% and one year of +20%, and withdraws ₹10 lakh at each year-end, after that year’s return. There are no taxes, fees or inflation in this simplified example.
| Return order | After year 1 | After year 2 |
|---|---|---|
| −20%, then +20% | 100 × 0.8 − 10 = 70 | 70 × 1.2 − 10 = 74 |
| +20%, then −20% | 100 × 1.2 − 10 = 110 | 110 × 0.8 − 10 = 78 |
Without withdrawals, both would end at ₹96 lakh. With these withdrawals, the earlier loss leaves ₹4 lakh less. This arithmetic illustrates sequence risk; it is not historical performance, a forecast or a safe-withdrawal recommendation.
What a nominal return leaves out
Purchasing power: a future rupee amount does not buy what the same amount buys today. SEBI describes inflation risk as a loss of purchasing power. SEBI: key investment risks.
Costs and taxes: check whether the projection includes them. Tax treatment depends on the investment, transaction and rules in force. Do not treat a pre-tax figure as spendable income.
Uncertainty: an assumed return is not a promised return. AMFI states that mutual funds involve risk and past performance does not guarantee future results. AMFI: risks in mutual funds.
How to use StratLab’s projections
- Start with household spending and goal dates. Check which account balances are actually available at retirement.
- Compare lower returns and higher costs. Treat any simulation as conditional on its model and inputs.
- Read the household funding review alongside the retirement target. A target assumes money is available; funding checks whether supplied income and assets can support payments.
- Revisit the plan when circumstances change. Check the model assumptions and dated sources before acting.
The SIP calculator illustrates fixed monthly contributions. The FIRE calculator gives a simplified benchmark. Neither alone settles whether your household can retire.
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Use the full planner to see your goals together and inspect the assumptions behind the result.
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