I am not a finance (cse background) guy but have some basic minimal knowledge about the inflation rate & interest rate of a country, and the net profit rate for an investment. As far as I understand, the average ROI rate per year or net profit rate should be at least above the inflation rate for any investment to become profitable.

now it's easy to calculate the average ROI rate per year, say for a 100 taka investment and a return of a total of 150 taka after 5 years, average ROI rate per year :

    = [ { (Return / Investment) ^ (1/total_year_of_investment) } - 1 ] * 100%
    = [ { (150/100)^(1/5) } - 1 ] * 100%
    = 8.45% roughly

So, I will only invest here if the inflation rate is below 8.45% otherwise won't. but, how to evaluate my country's optional pension scheme which it involves (I) continuous investment over a long time and then after the maturity period, (II) continuous return over some time. And in the return phase, the average ROI rate per year calculation involves some complex factors like distributed investments over some time.

As I roughly calculated the ROI rate per year in the previous example, is there any standard way to roughly evaluate a pension scheme's average ROI rate per year over time so that I can make a decision comparing it with the ongoing/expected inflation rate whether it is profitable or not?

** I had an idea to evaluate total investment and total return at a single reference time point within the whole period. Let's say I select the maturity stage or the time point when the investor will start receiving monthly payments, as a reference time point. Now if I want to calculate all the investment value at the reference time point I will apply the 'X' depreciation rate to all the past investments to calculate actual investment valuation at the reference time point. Same way, I will apply the "X" appreciation rate to all future returns to calculate the valuation of the actual return at the reference time point. Then I can calculate the ROI rate and find a relation with the inflation rate. It may sound dumb and sorry in advance if that's the case.

Show me a way to evaluate a pension scheme where I am paying "X" amount per year for 10/20/30 years (investment period) & after 30 years (maturity time, not depending on investment period) I will get "Y" amount (depending on the investment period) of money per year for next 15 years consecutively. how do I compare this scheme's profit rate with the expected inflation rate to make a decision? what will change in the case of monthly payment/return instead of yearly ? Thanks a lot in advance

  • 1
    Generally, this type of retirement savings come with additional tax benefits on top of the nominal investment returns. You'll need to factor those in, and then the calculations would look differently
    – littleadv
    Commented Apr 22 at 3:54
  • In the US: it's complicated as major factors include how long you live (affected by gender), marital status, what your salary distribution is over time, and therefore the government computes it for you.
    – user71659
    Commented Apr 23 at 18:50


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