Arriving at terminal wealth – The Hindu

The amount you need at the end of the time horizon for a goal is referred to as terminal wealth. In this article, we discuss how to determine the terminal wealth for a goal. We also look at how to adjust for taxes on goal-based investments, as taxes can impact a goal’s terminal wealth.

Suppose you want to provide for your child’s college education ten years hence. As the first step, you must find out the current cost of college education for a branch of study you believe your child will pursue. For other goals such as buying a house, you must consider the current cost of buying your desired house. Next, you must consider the inflation related to the goal. A search on the Internet suggests that education inflation is 10%. Suppose the education you want your child to have costs ₹25 lakh today. You must determine how much it would cost 10 years hence at 10% inflation. That would be the terminal wealth required for the life goal.