Financial Planning News — When it comes to long-term financial planning, many people believe they are being realistic. Whether the goal is retirement, a child’s education, or achieving financial independence, most plans are built around a few common assumptions. Typically, investors expect around 12% annual returns from equities, assume inflation at 6%, project life expectancy up to 85 years, and estimate yearly income growth at 10%.
The real problem, however, is not making these assumptions—it is treating them as fixed and guaranteed. In reality, none of these factors remain constant over decades. Even small errors in these assumptions can compound over time and seriously derail an otherwise well-structured financial plan. Experts point out that the biggest risk in financial planning is often not market volatility, but inaccurate expectations.
Here are the four critical data points that demand special attention while planning for the long term.
Inflation often feels insignificant in the short term, but its long-term impact can be devastating if underestimated. A difference of just 2–3 percentage points can completely alter future expense calculations.
For instance, if your current monthly household expense is ₹70,000, a 4% inflation rate would push this amount to approximately ₹1.53 lakh per month after 20 years. However, if inflation averages 6%, the same expense would rise to nearly ₹2.24 lakh per month. That is an additional ₹70,000 every month—purely due to higher inflation.
Historically, India’s retail inflation has averaged close to 6%, but it has never been stable. Periods of high inflation followed by moderation make it extremely difficult to predict accurately. This uncertainty makes inflation one of the most challenging yet crucial elements in financial planning.
Equities are known to deliver strong returns over the long term, but expecting consistent high returns every year can be risky. For example, the 10-year rolling average return of the Nifty 50 Total Return Index has been around 11.88%. While this average looks attractive, real-life portfolios do not remain fully invested in equities throughout the entire investment period.
As financial goals approach, asset allocation usually shifts toward safer instruments to protect capital. This gradual move to conservative assets lowers the overall return of the portfolio. Therefore, instead of assuming peak historical returns, planning with a realistic expectation of 11–12% equity returns is considered more sensible.
Overestimating returns can lead to under-saving, which only becomes apparent many years later—often when it is too late to correct the gap.
Life expectancy is one of the most underestimated factors in retirement planning. Many people fail to appreciate how much longer their savings need to last after retirement.
For example, if a person assumes a life expectancy of 80 years and plans for 20 years of post-retirement expenses, they may need a retirement corpus of around ₹4.33 crore, requiring a monthly investment of approximately ₹23,085. However, if life expectancy extends to 85 years, the retirement period increases to 25 years, pushing the required corpus to about ₹5.19 crore and the monthly investment to ₹27,629.
If one lives until 90, the retirement period becomes 30 years, demanding a corpus of nearly ₹5.96 crore and a monthly investment of around ₹31,767. These numbers clearly show how even a small increase in life expectancy significantly raises the required savings.
Given improvements in healthcare and living standards, planning for a longer life is no longer optional—it is essential.
Income growth plays a vital role in determining how much you can save and invest. Most financial plans assume a steady 10% annual increase in income. In reality, income growth is rarely smooth or predictable.
Career changes, industry slowdowns, job losses, or personal decisions can disrupt income trajectories. While some years may bring rapid growth, others may offer little or no increment. Although past salary trends and career progression can provide guidance, relying on optimistic projections can be risky.
Financial planners generally advise being conservative while estimating income growth. A cautious approach creates a buffer and reduces the chances of falling short of long-term goals.
If any of these four assumptions—inflation, returns, life expectancy, or income growth—turn out to be inaccurate, the impact can last for decades due to the power of compounding. Unfortunately, these mistakes often become visible much later, when corrective action is difficult.
This is why experts stress that the greatest threat to successful financial planning is not market fluctuations, but flawed assumptions. Regular reviews, conservative estimates, and flexibility in planning are the keys to building a resilient financial future.
In long-term financial planning, realism matters far more than optimism.
