About the Deterministic Approach

In the Deterministic page, you can calculate the retirement corpus by providing inputs for equity return, debt return, inflation, retirement period and equity allocation. If you have previously used a typical retirement calculator, you would be familiar with these inputs.

The critical flaw in this approach is that it assumes that asset returns and inflation are predictable. This is why this approach is called ‘deterministic’, as it assumes that the future is determinable and predictable. Unless you have a crystal ball, this is not a good assumption.

Another problem with the Deterministic Approach is that it assumes that your retirement portfolio will earn the same equity returns, debt returns and inflation each year. Reality will be very different. Each year, your retirement portfolio will face different equity returns, debt returns and inflation. This is called the Sequence of Return Risk, and without factoring this risk, you cannot accurately calculate the required retirement corpus.

If you were to check the required retirement corpus obtained through the deterministic process for adequacy (in the Test Adequacy page), you would see that the corpus mostly shows a high failure rate. Thus, it is recommended that you calculate the required retirement corpus using the Stochastic Approach. This approach will give you more accurate results as it takes into account volatility in future asset returns and inflation.