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upadhyay Time: 08-29-2025 18:42 Color:

cover story
02 The Economic Times Wealth September 01-07, 2025

Your retirement math is

wrong. Here’s what works
New research reveals why traditional withdrawal strategies fail in today’s volatile
markets—and the adaptive approaches that can actually protect your savings.

Y
by Sanket Dhanorkar figure is built on certain variables. ity demands a more sophisticated approach mask the interim market volatility. But
Most financial plans look sanguine when than the one that served previous genera- market returns or inflation don’t move
our retirement plan may laid out on an Excel sheet. But when exposed tions,” contends Ravi Saraogi, Founder, in a linear fashion. Mohit Bagdi, Head of
be broken! Consider the to economic and market realities, as well Samasthiti Advisors. Investment Research, MIRA Money, as-
topmost concerns for as life’s many vagaries, those dreams often serts, “The financial landscape is far from
anyone planning for their fall apart. Can you really forecast returns Fighting the unknown devil: simple. Markets — whether debt, equity, or
sunset years: How much and inflation for the coming five years, let sequence of returns real estate — are dynamic, not linear.”
money do I need for a comfortable alone the next 30-35 years? Are past figures Most retirement plans built around fore- This is the monster that lurks silently
retirement? How much pension can I a reliable enough indicator of the future casting have a fatal flaw. These hinge on on the retirement battleground. It goes by
expect to receive in retirement? The trajectory? Can you predict how the pattern historical averages, which extrapolate the benign moniker of ‘sequence-of-return’
answer can often be found quickly in of gains and losses will play out? Even small numbers—such as return and inflation— risk. This refers to the specific order in
an Excel sheet or a retirement calcula- deviations in the numbers can bring your observed over a long stretch of time. This in- which your portfolio earns its returns.
tor. Typically, you would plug in some carefully crafted plan to its heels. troduces two problems: One, you rely heav- Ignoring this risk can significantly impact
numbers—take current living ex- It is becoming increasingly clear that ily on what worked in the past. This makes your entire retirement plan.
penses, make forecasts about returns, retirees need to reassess their approach to you susceptible to overestimating future Here is why: If the market falls sharply
inflation, and life expectancy, and planning for the second half of their lives. returns. “The next 30 years may be nothing in the early years of your retirement, the
apply a formula to arrive at the magic “They are now responsible for convert- like the past 30 years,” cautions Deepesh impact of those initial losses could be dev-
figure. Then there are thumb rules ing a lifetime of accumulated assets into Raghaw, Founder, [Link]. astating, even after a subsequent market
that suggest targeting a sum which is a sustainable income that must last for an Two, historical averages overlook how rebound. Suppose two investors, A and B,
‘x’ times current expenses. Again, this unknown number of years. This new real- those trends evolved year after year. They start their retirement years with the same
 NG 3.7 PubDate: 01-09-2025 Zone: ETWealth Edition: 1 Page: ETWDP3 User: [Link] Time: 08-29-2025 18:48 Color:

cover story
The Economic Times Wealth September 01-07, 2025 03

corpus of `1 crore. Two different market

scenarios play out for A and B, where the re-
Past returns may not be repeated “If your portfolio
turns are identical, except that they occur in With asset returns falling over time, retirees can’t rely on past strategies. faces poor returns
reverse order. A experiences higher returns
in the early years, while B witnesses a re- Asset returns over the years
in the early years
17%
verse sequence—lower initial returns, with
higher returns coming later.
20%
30-year nominal equity return 30-year nominal debt return
of retirement while
Over the next ten years, both A and B fetch
the same average return. But due to the spe-
18% you’re withdraw-
cific pattern of gains and losses, A has ` 65 16% ing, your wealth can
lakh more than B. Meanwhile, B’s savings
are depleted, despite fetching higher-than- 14% shrink so much that
average returns in later years. B now faces 10% 10%
uncertainty in the remaining years of his
12% even later good
retirement, as the longevity of his portfolio
is severely compromised. This difference
10% years may not help
9%
becomes even more pronounced over a 20- or
30-year retirement horizon.
8%
31 May 2009 31 Oct 2024
you recover.”
What does this tell you? Your portfolio Source: Samasthiti Advisors
value depends significantly on the sequence
of returns it experiences over the years.
One cannot predict in advance how this
sequence will unfold. If your portfolio is
A bad sequence-of-returns at critical NEHAL MOTA
CEO & CO-FOUNDER,
not geared to contend with this, you risk
outliving your savings. Nehal Mota, CEO &
phases can severely dent corpus FINNOVATE

Co-founder, Finnovate, says, “If your port- Negative returns occurring early in your retirement life hurts longevity of savings. turely depleting it. “Essentially, the
folio faces poor returns in the early years of SWR determines how much you can
retirement while you’re withdrawing, your Portfolio return Value of `1 crore initial corpus safely withdraw each year, starting
wealth can shrink so much that even later with a fixed percentage in the first
Year A B A B
good years may not help you recover.” year, and adjusting for inflation in
1 15% -5% 1,08,10,000 89,30,000 subsequent years,” points out Saraogi.
Is bucketing the answer? For example, if someone retires with
2 25% -15% 1,27,62,500 70,80,500
Some argue that sequence-of-returns risk a corpus of `1 crore and follows a SWR
can be better countered using a bucketing 3 40% -25% 1,70,27,500 48,60,375 of 4%, they would withdraw `4 lakh in
approach. This approach suggests that re- the first year. In the following year, as-
tirees segregate the portfolio into distinct 4 7% 4% 1,75,77,425 44,30,790 suming a 5% inflation rate, they would
buckets for risky and safer assets, tied to 5 15% 12% 1,95,24,039 42,90,485 withdraw `4.2 lakh, and so on.
the time horizon. By allocating funds into It eliminates the need for forecast-
low-risk investments for short-term needs 6 12% 15% 2,11,94,923 42,44,058 ing future returns and inflation based
and higher-risk investments for longer-term 7 4% 7% 2,14,18,720 38,99,142 on a single period in history. It seeks to
needs, investors can adjust the sources of identify the optimum rate of withdraw-
their withdrawals based on market condi- 8 -25% 40% 1,56,14,040 46,18,798 al that can work across multiple sce-
tions. When the market dips, the investor 9 -15% 25% 1,27,61,934 50,23,498 narios. This approach encompasses a
draws only from the safer, fixed-income range of potential outcomes that your
bucket. When the market is rising, the inves- 10 -5% 15% 1,15,53,838 50,87,022 retirement portfolio could experience,
tor starts drawing from the other bucket and ultimately arriving at the sweet spot
Avg return 7.3% 7.3% B is left with `65 lakh less
refills the fixed income bucket. “This simple where your portfolio can sustain itself
system ensures you are never forced to sell over your lifespan. By adhering to a
Withdrawals of `6 lakh are assumed to occur at the start of every year.
equity in a down market to meet expenses, a disciplined withdrawal strategy, re-
mistake that ruins many retirements,” Mota tirees can mitigate the damage caused
observes. It also allows the equity portion to
recover after downturns, which can enable
Bucketing strategy helps contain by poor early returns and preserve the
longevity of the portfolio.
retirees to hold higher equity allocations
without increasing risk. “This method can impact of bad markets Numerous studies in the past have
suggested that a 4% withdrawal rate
make your retirement more resilient by In this approach, you always have predictable money to spend, from a 50:50 equity-to-bonds portfolio
matching investments to time horizons — while your growth portfolio compounds safely in the background. is the magic figure. This number
instead of trying to stretch one fixed with- could be even lower at around 3-3.5%
drawal rate across decades,” opines Bagdi. Time horizon Time horizon Time horizon for Indian retirees, as per a 2024 study
However, the bucketing strategy is not 0-3 years 3-10 years 10+ years by Rajan Raju and Ravi Saraogi.
BUCKET 1 BUCKET 2
foolproof. It will not completely shield you BUCKET 3 Assets Higher withdrawal rates and more
Assets Assets
from an unfavourable sequence of returns. Savings Debt funds, Equity funds, extended retirement periods have
There is no mathematical edge to a bucket account, FDs, conservative aggressive higher failure rates. “With asset re-
strategy over simple rebalancing, finds liquid funds hybrid funds hybrid, bal- turns falling every decade, the safe
Saraogi. “Simple periodic rebalancing anced adv. withdrawal rates may be lower than
strategies outperform bucket strategies Purpose Purpose what earlier generations were used
Emergency Stable in- Purpose
because they not only avoid selling equity at needs, come with Long term to,” observes Saraogi. If retiring early,
market bottoms but also actively buy equity liquidity low risk growth to the safe withdrawal rates are even
when valuations are low. This is a critical beat inflation lower.
strength that traditional bucket strategies Let’s examine an example. Consider
fail to exploit.” How it works a retiree who needs a monthly expense
coverage of `1 lakh for the first year of

1 2 3 4
Safe withdrawals: Spend from Refill Bucket Replenish Ride out vola- retirement, extending over the next
finding the sweet spot Bucket 1: 1: Every few Bucket 2: Over tility: Even if 30 years. If he starts with an asset al-
Your immedi- years, you time, profits stocks crash, you
How then can you ensure a safer glide path location of 40:60 in equity:debt, simu-
ate living ex- top it up from Bucket 3 don’t touch them
in your retirement? lations of 5,000 multiple scenarios
penses come from Bucket (growth) are for 10+ years, so
One approach deals with safe withdrawal suggest you would need a retirement
from safe, 2 (income shifted into you avoid selling
rates (SWR). It targets optimal withdrawals corpus of approximately `3.83 crore to
liquid money assets) Bucket 2 at a loss
from a retirement portfolio without prema- achieve a 95% success rate. This cor-
 NG 3.7 PubDate: 01-09-2025 Zone: ETWealth Edition: 1 Page: ETWDP4 User: [Link] Time: 08-29-2025 18:50 Color:

cover story
04 The Economic Times Wealth September 01-07, 2025

responds to an expenditure cover ratio

(as a multiple of first year expenses) of
“Rigid rules may Higher equity allocations do not always
nearly 32 times and a safe withdrawal
rate of 3.13%.
have worked in a enable higher safe withdrawals
To be sure, there is nothing sacro-
sanct about this figure. Your asset al-
different era, but re- Annual safe withdrawal rate (%) in different scenarios 25 years
35 years
30 years

Equity allocation
location and lifestyle would determine
the suitable withdrawal rate. Retirees
tirement today calls 3.7 3.8 3.8 3.7
Retirement lifespan
3.5
often become fixated on determining
the correct withdrawal rate. Some
for flexibility. Think 3 3.2
2.8
3.2
2.8
3.1 3
3.3
3.1
2.6 2.7 2.8
argue that the 4% rule is too con-
servative and that retirees could safely
dynamic withdraw- 2.6 2.5 2.6
2.3

withdraw more, with more aggressive

allocations.
als, think buckets
Contrary to perception, increasing
exposure to equities beyond a point
and think long-term.”
makes the portfolio vulnerable to MOHIT BAGDI
faster depletion of the corpus. A study HEAD OF INVESTMENT RESEARCH, MIR A MONEY
0% 10% 20% 30% 40% 50% 60%
by Saraogi suggests that the safe with- Based on Monte Carlo simulations using historical data for equity, debt and inflation between 2000-2023. The rate
drawal rate peaks at an equity alloca- for variability in retirement spending, such shown is the annual withdrawal rate that allows for a 95% target success rate without depleting the corpus before
the designated retirement period ends.
tion of 30-40%. as adjusting for unexpected expenses or
Source: Balancing Acts: Safe Withdrawal Rates in the Indian Context (by Rajan Raju and Ravi Saraogi, Jan 2024).
Withdrawal rates initially rise with changes in lifestyle. “Typically, retirees
equity allocation but then begin to respond to evolving market conditions and
decline. “Increasing equity beyond personal circumstances,” says Saraogi. If Dynamic withdrawals can help sustain
this point to the retirement portfolio is
like adding fuel to the fire. It will burn
markets fall sharply, depleting portfolio val-
ue, the retiree will likely tighten his spend- corpus over entire lifespan
down your retirement plan,” he says. ing. On the contrary, if asset prices soar, Fixed withdrawals may deplete your corpus early, as spends fail to
There are ways in which individuals swelling the portfolio corpus, the retiree adjust for market conditions.
can target higher withdrawal rates, al- would be comfortable loosening her purse Corpus (fixed withdrawals) Corpus (adaptive withdrawals)
lowing them to draw higher sums from strings. “Fixed withdrawals assume that Value of `1 crore corpus
their portfolio. For instance, introduc- retirees are monks, who are not affected
ing gold and multi asset funds to the by what happens around them,” remarks
1,00,00,000
asset mix improves portfolio stability, Raghaw. Besides, expenses are not always
allowing for higher safe withdrawal predictable. In real life, retirees incur ex-
rates. penses beyond their usual requirements,
such as house repairs, gifts, and healthcare,
Dilemma of fixed Raghaw points out. Bagdi concurs, “Life
31 Jan 1994
withdrawals expectancy is rising, inflation is unpredict-
Constant, inflation-adjusted with- able, and spending needs can change over-
drawal rates are not suitable for night. In this environment, following a rigid
plan may do more harm than good.
In this example, retiree goes broke within 24 years. With dynamic with-
1,08,049 16,51,567
everyone. One, it puts a lot of strain drawals, retiree is able to make corpus last for the planned 30 years, and
31 Dec 2023
still has leftover funds. Assumptions: Withdrawals are done at the rate of 31 May 2018
on the portfolio, as, irrespective of For better outcomes, experts suggest
4.5% from the portfolio value each year, subject to a 15% floor and 20%
market returns, it is expected to spit that retirees can use dynamic withdrawals ceiling. Source: Samasthiti Advisors
out a constant withdrawal, adjusted to ensure their savings provide coverage
for inflation. This also warrants that
retirees start with a meaty initial
for their entire lifespan. In this approach,
withdrawals can be adjusted based on how Dynamic withdrawals can
corpus, to ensure they don’t run out of
savings during their lifetime. “That’s
the corpus behaves. The retiree reins in
expenses if the portfolio value has depleted also allow for higher spends
an onerous requirement because you and is free to hike spending in line with in- Fixed withdrawals do not permit flexibility in 4,40,153
are asking the portfolio to generate cremental gains. “Retirement planning isn’t spends in rising markets, leading to a large inheri-
constant inflation-adjusted withdraw- static, and neither should your withdrawals tance, which the retiree otherwise could have spent. 4,03,632
als,” Saraogi explains. be. Adjusting how much you draw based on
Two, a fixed withdrawal approach market performance can dramatically im- Monthly withdrawals
may be too conservative for some. It prove outcomes,” Bagdi argues.
Total withdrawals (fixed)
may result in spending less than what How does this help? Even if you experi-
Total withdrawals (dynamic)
one could have. You may end up leav- ence a bad sequence of returns in the initial
ing behind a large inheritance for your years of retirement, lowering withdraw-
loved ones, and miss out on living a als by 15-20% can help avoid depleting 37,500
better retired life yourself. “Running your portfolio during market downturns.
out of money is a risk, but leaving a Saraogi’s 2025 research paper “Boosting
lot of money behind is an even bigger Retirement Income through Dynamic
problem,” avers Ravi Handa, Founder Withdrawals” finds that certain dynamic
30 Nov 1980 31 Oct 2010
of [Link], an AI-based plat- withdrawal strategies boost savings longev-
Final spending would have been 10% higher in dynamic withdrawals, and final corpus less by about 12%. Assumptions:
form offering personal finance solu- ity and eliminate outright failure. (Refer Withdrawals are done at the rate of 4.5% from the portfolio value each year, subject to a 15% floor and 20% ceiling.
tions. Mota argues, “The well-known [Link] . This also allows Source: Samasthiti Advisors
‘4% withdrawal rule’ was designed you to start with a lower initial corpus, un-
to last 30 years. However, today, with like in a rigid withdrawal strategy. But how gies available today, asserts Mota. “Early ment plan, it is prudent to err on the side of
longer lifespans, higher healthcare can you modify your monthly spending on bad years don’t derail your plan because caution.
costs, and volatile markets, it’s no the fly? While spending on essentials cannot your income is coming from safe assets. You “There are too many unknowns that can-
longer foolproof. Stick to it blindly, be altered, the key is to keep your discretion- can spend more when markets are good and not be modelled on a spreadsheet. The real
and you may either run out of money ary expenses flexible. “Most of us have flex- tighten when they’re not.” Bagdi maintains, comfort in retirement planning comes in
too soon or end up leaving too much ible expenses. You can use your discretion “Rigid rules may have worked in a different being conservative,” avers Raghaw. Half the
unused wealth.” wisely and adjust as and when the situation era, but retirement today calls for flexibility. battle is won if you plan for higher expenses
changes,” suggests Handa. You are merely Think dynamic withdrawals, think buckets and lower returns. Choose a strategy that
Adaptive withdrawals deferring certain expenses for later, such as and think long-term.” aligns with your behavioural comfort and
Retirement plans built on fixed pen- a house renovation or vacation. financial needs.
sions or withdrawals ignore a key Combining bucketing with adaptive with- Choose wisely
behavioural aspect. They don’t allow drawals is one of the most practical strate- Whatever your chosen path in your retire- [Link]@[Link]