Last Updated on February 12, 2022 at 6:15 pm
One crore rupees is an emotional milestone for anyone with a much lower networth. This is why people buy term insurance policies for one crore without evaluating how much they need. Let us find out what is the value of Rs. one crore in 2021.
You could buy some variant of Audi, Benz or BMW for one crore (incl taxes) or you could take an exotic 2-3 day holiday to Tetiaroa in French Polynesia, once owned by Marlon Brando and stay in the luxury resort named after him. Or you could spend about 18 months of backpacking in Europe.
If you are like the members of Facebook group Asan Ideas for Wealth, you might buy some land in rural India and turn farmer or stay in a hotel for four years (three-star, 10K a day all costs inclusive with a deal to stay all -year long but pay for 250 days and fixed price) or go on a world tour. Also see: What would it cost to live in a hotel after retirement?!
We recently saw Rs.1000 in 1980 is only worth Rs. 63 in 2021! This means something requiring a crore today was worth Rs. 7.8 Lakh in 1980. In the next 40Y, this would mean seven crores! The point being, the goal post is changing all the time.
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Let us ask and answer a more serious question. If we had one crore with us today, how long would it last? This is entirely subjective (like that world tour), but we can consider some examples.
How much pension can we get with one crore in 2021
Suppose we use this one crore to buy a pension which is just regular income at some regular interval (monthly, quarterly or bi-annual) then we would get about Rs. 6 lakh a year. This is approximate and after accounting for tax. See an example here: ICICI Pru Guaranteed Pension Plan Review and Can I get a pension using GOI bonds instead of LIC pension?
This is about Rs. 50,000 a month. If you think this is a tidy sum, you probably do not have one crore to spare. If you can spare one crore, your lifestyle may require more income! That is the catch-22 situation with wealth! When one crore seems big, we do not have it, and when it seems ‘ok’ we would need much more. It is rare to find middle-class crorepatis like Santhosh!
Consider the following: Age 35; Monthly expenses Rs. 30,000; Inflation 6%. After 20 years, the current monthly expenses alone (not counting for any additions along the way) would be about one lakh a month.
If the post-tax return from specific pension products is about 6% in 2021, how would it be in 2041? If we are lucky 4% (no, we would not move down the tax slab; No, our expenses will not reduce with age). This means we would need three crores (the changing goal post).
Said in another way, only a future multi-crorepati can afford a present 30K a month lifestyle hoping that income and capital gains in the intervening period would bridge the gap.
We have not yet confronted the most critical bad news. Rs. one lakh a month expenses at age 55 would not remain the same! To account for inflation, any kind of emergencies etc. about 4-5 crores would be necessary!! See: How should I invest to get Rs. one lakh a month pension?
How long would one crore last?
Assume that you have one crore with you for a moment, but your future income stops (at least temporarily). You do not change your lifestyle in any way. The person who gave you that one crore also takes care of any debt you have and your children’s education. How long can you live off that one crore?
This is a complex calculation if we are to do it for a real-life situation; it requires a bucket strategy approach and multiple assumptions. This can be accomplished with the freefincal robo advisory template: here are some examples: Can I Retire With Rs. One Crore Today?
For this post, we can do a simple back-of-the-envelope calculation with a single Excel formula:
=NPER((1+return)/(1+inflation)-1,-payment,corpus,,1)
You can download the sheet from here: Four Simple Retirement Planning tools. Please note, these assume the entire corpus would be invested somewhere earning some return and withdrawals = payment is made from a corpus at the start of each year (1 in the formula). The withdrawals increase at a rate = inflation.
This is not practical as one would need to incorporate some form of income flooring or pension: Creating the “ideal” retirement plan with income flooring! We shall see however us it to appreciate how small one crore is in 2021.
The return in the formula is the post-tax return from the entire portfolio. Before we rush to enter a nice number here, we must appreciate that this one crore is the only income source. So we cannot take on too much risk. A pre-tax return of 8% and a post-tax 7% return (assuming it is all from the Sahi hai product and CG tax). Also bear in mind, we are computing years based on current expenses, assuming no new expense would get added.
| Monthly Expenses (withdrawn each year from the corpus in Jan) | Years one Crore would last at 6% inflation and 7% post-tax portfolio return |
| 20000 | 52.5 |
| 25000 | 39.7 |
| 30000 | 32 |
| 35000 | 26.8 |
| 40000 | 23 |
| 45000 | 20.2 |
| 50000 | 18 |
These seem wonderful numbers. The catch-22 situation is on display again: How many with only Rs. 20,000 expenses have one crore net worth? Even if they do, how many of them are at least 45-plus to risk retiring early with only one crore? A 20/30-something bachelor may have that kind of expenses today, but living off just that one crore alone is risky – they could have additional expense even if they do not get married or become parents – for example, hospitalization or care of parents.
One crore is certainly borderline ‘ok” for a person 55+ with expenses of about Rs 30,000 a month (with parents passed on). Any higher or any younger, one crore is not enough. There would always be some kid in some FIRE forum offering practical gems such as, “if one year the returns are less than expected we will just spend less”. This the same as saying, I have never seen a stock market crash before, but I know exactly what to do when it happens.
To summarise, one crore in 2021 is certainly a “good amount of money”. However, is it a sufficient amount of money depends on what we want to buy; how we intend to use it for income generation; our age; how long we live (our relatives could keep us alive or get us whacked); how our expenses increase; how healthy we are; how healthy (financially, physically) our relatives etc.
Yes, many of these are unknowns and can only we accounted for when we face them or with a yearly review. The question we need to ask is, have we accounted for all knowns? Inflation; uncertain income; forced early retirement; longevity; lifestyle changes etc.
Takeaway one: Everyone (reading this) needs to become a multi-crorepati. It is not a dream; It is not a destination; It is our destiny. Inspired from: “Dryland is not just our destination, it is our destiny!” – Waterworld (1995)
Takeaway two: The only way to ensure “we have enough” at retirement is to follow this formula:
The rate at which income increases in future >> The rate at which expenses increase in future.
This means not assuming we have “reached the next level” each time we get a pay rise and finding new ways to spend. We may or may not always control our expenses; We must try our best to increase our income as much as possible – preferably sow the seed for passive income streams that would last a lifetime. See for example
- How to earn one lakh a month passive income?
- Passive Income Automation: An Example
- Passive income examples that work in more ways than one!
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