Retirement corpus at 3%, 4% and 5% withdrawal rates

One idea, three corpus sizes

A withdrawal rate is a simple ratio: what you take out in the first year divided by the corpus you start with. If you need ₹50,000 a month, that is ₹6 lakh a year. The corpus is then ₹6 lakh divided by the rate.

The corpus at 3% is double the one at 6% for the same spending. That is why the rate you choose matters as much as the amount you save. Our retirement calculator walkthrough shows how to turn a target corpus into a monthly SIP, and the retirement calculator runs the numbers.

What the rate really assumes

A withdrawal rate is not a promise that a corpus lasts. It rests on assumptions about three things:

• How long you need it. Retiring at 55 can mean 35 years or more of withdrawals. A rate that suits 20 years can be too high for 35.
• What the money earns. If the portfolio earns less than the rate you withdraw plus inflation, the corpus shrinks in real terms.
• The order of returns. A bad start hurts more than a bad end, covered in our post on sequence of returns.

The widely quoted 4% rule comes from US studies. Indian inflation and returns differ, so treat it as a starting point to test, not a rule to adopt.

The inflation step people skip

₹50,000 a month is a figure in today's money. At an assumed 6% inflation, the same lifestyle costs about ₹1.6 lakh a month after 20 years (₹50,000 × 1.06^20). If you retire then, the corpus must be sized on ₹1.6 lakh a month, which is about ₹19.2 lakh a year. At a 4% rate that is roughly ₹4.8 crore, not ₹1.5 crore.

Run your own version on the inflation calculator. Forgetting this step is the most common reason a retirement target comes out far too low. Our post on how inflation eats your savings explains the effect in more detail.

Withdrawal plans in practice

Most retirees do not take a fixed percentage of whatever is left. They draw a planned monthly amount, often through a systematic withdrawal plan. See SWP for retirement income and the SWP calculator walkthrough to see how long a given corpus lasts at a given amount.

Ways to make a lower rate easier

• Delay retirement a few years: the corpus grows longer and needs to fund fewer years.
• Keep some spending flexible so a poor year can be met with a smaller withdrawal.
• Hold a cash buffer of one to two years of spending, so you are not forced to sell after a fall.
• Count other income, such as EPF or NPS annuity payouts, against the target.

This post is educational, not financial advice. The rates and the 6% inflation are assumptions for illustration, not forecasts or recommendations.