Most retirement planning focuses on the “Magic Number”—the total corpus. But the day you stop working, the game changes. You stop getting credited on the 1st of the month, which helps you meet all your expenses. Instead, you need to plan to get that money into your account from the corpus you have accumulated. To meet monthly cashflow requirements, retirees can rely on:
- Interest
- Dividends
- Rental income
- SWP
Unless the corpus is very high, such that only interest, dividends, or rental income can meet your requirements, an SWP will be required at some stage. Also, interest income often remains static, whereas expenses grow due to inflation, making capital redemptions a necessity.
About the author: Jay Sheth, SEBI Registered Investment Adviser and a member of Fee-only India, a group of fixed-fee-only advisors. He can be contacted via his website shwealth.in.
For retirement planning, most of the strategy centres around the allocation between monthly inflows coming from fixed income or redemptions (SWP) and the allocation between debt and equity. Too high an allocation to debt, and your corpus may not grow enough or fall short; a very high allocation to equity may necessitate early withdrawals, thereby increasing the risk of capital erosion in the event of a sequence of bad returns.
In this blog, we will see historically how an SWP would have played out if a person retired between 2005 and 2008 with a corpus of INR 50 lakh, an initial withdrawal rate of 4%, and expenses growing at 6% p.a.
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The following chart shows the corpus if the entire amount were allocated to a single asset class (Gold, Nifty 100, Nifty Midcap 150, Nifty Smallcap 250, S&P 500, or G-Sec 10-Year). A hypothetical balanced portfolio (B Folio in the chart) is also created, assuming a 10% allocation to gold, 30% to Nifty 100, 10% to the Midcap index, 5% to the smallcap index, 10% to the S&P 500, and 30% to G-Sec.
What we can see here is that if the corpus were invested 100% in any asset class, it would have grown substantially in value despite the monthly withdrawals. The required withdrawal rate as of 2025 would drop to 0.8%–1.9% across all asset classes except G-Sec. This would suggest that putting everything into equity could be a good idea; however, let us now look at how the corpus changes over the years if we keep the same assumptions, but assume the retirement instead started in January 2008.
The scenario would have changed completely had the SWP begun in 2008. If everything were put into the Smallcap 250 index, the corpus would have been exhausted by the end of 2024. The midcap corpus, which was shining if the retirement SWP started in 2005, now struggles significantly. We now see the merit of having a balanced portfolio, which would have outperformed all Indian equities for most of the 17-year period. The balanced portfolio would have barely doubled over 17 years, and the required withdrawal rate would rise to 6.8%. This emphasises the need to rebalance rather than to follow a fixed withdrawal strategy for each asset class.
Now, let us see what happens if we had a bucket strategy and gave equity time to grow rather than withdrawing immediately. Let us assume retirement in 2005, with 50% of the corpus going to debt (G-Sec) and 50% to equity (Nifty 100). For the first 3 years, withdrawals are made only from debt. Since 2008 (when the sequence of bad returns began), all withdrawals have been shifted to equity. Ideally, 4–5 years of expenses should be kept in debt before tapping equity; however, a 3-year timeframe is taken here so that withdrawals begin exactly in 2008 when the bad sequence of returns starts. Also, for simplicity, only Nifty 100 and G-Sec are considered; in reality, there could be additional buckets of FDs, hybrid mutual funds, etc.
In this scenario, the equity base would have increased from INR 25 lakh in 2005 to INR 78 lakh in 2008, providing a much higher base to sustain the bad sequence of returns. If withdrawals from equity had continued, the corpus by the end of 2025 would have been INR 2.4 crore (debt plus equity), with a withdrawal rate of only 2.8% required after 20 years—indicating enough cushion for the corpus to last a lifetime.
Looking at both the charts, it may seem like gold is the real winner among all the asset classes. However, it is more a case of timing. If we were to assume retirement and SWP from 2013, all Indian equities and the S&P 500 would have comfortably outperformed Gold, assuming the same SWP annually.
Conclusion
Retirement planning requires careful consideration of asset-class allocations, an appropriate withdrawal strategy, and tactical rebalancing. Predicting highs and lows of asset classes is futile; it is better to be well diversified and have a bucketing strategy.
Note: Tax and transaction costs have not been considered during redemptions. All returns are historical pre-tax.
Disclaimer: Nothing in this article is my solicitation, recommendation, endorsement or offer. Past performance of an index, individual asset class, or combination of asset classes is no guarantee of future returns or risks. We do not take any responsibility for investment decisions based on this article. Please consult your advisor before taking any investment decisions. Registration granted by SEBI, BASL membership, and NISM certification do not guarantee the intermediary’s performance or provide any assurance of returns to investors. Investment in the securities market is subject to market risks. Read all the related documents carefully before investing.
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