Same ₹2 Crore, Two Retirees: Why One Runs Out by 72 & the Other Lasts to 90

Same ₹2 Crore, Two Retirees: Why One Runs Out by 72 & the Other Lasts to 90

Introduction: The Same Amount, Diverging Paths

Imagine this: two retirees, both with a solid ₹2 crore in savings. They plan to withdraw ₹1 lakh each month. Yet, one runs out of money by age 72, while the other continues comfortably until 90. How can the same strategy lead to such drastically different outcomes?

The answer lies in something financial experts call sequencing risk—the impact of market return order.

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1. What Is Sequencing Risk?

Even with the same overall return rate, the timing of gains and losses matters.

• Retiree A retires right before a market downturn. Early withdrawals eat into the shrinking principal.

• Retiree B retires amid a market boom. Their portfolio grows before starting withdrawals, giving resilience even during later turbulence.

Both average out to similar long-term returns, but their withdrawal paths differ dramatically.

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2. A Real Example to Make It Clear

Think of it like climbing a staircase:

• One person starts from the lowest step—each drop hurts them more.

• The other begins near the top—downgrades feel less impactful, and they still have room to move up.

Even if both climb the same number of steps later, their starting points change the whole experience.

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3. Intelligent Planning Steps to Mitigate Risk

Here’s how to avoid being Retiree A:

• Bucket Strategy: Set aside 2–3 years of living expenses in safe, liquid assets (like debt funds or savings). Draw from this bucket until markets recover.

• Flexible Withdrawals: Instead of a fixed ₹1 lakh/month, allow yourself to reduce withdrawals during downturns.

• Dynamic Asset Allocation: Shift more into equities when markets dip to benefit from recovery over time.

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4. Safe Withdrawal Rate (SWR) Isn't One-Size-Fits-All

You’ve probably heard of the "4% rule." It says retirees should withdraw no more than 4% of their portfolio each year, adjusted for inflation. In theory, with conservative returns, this helps a fund last 30+ years.

But SWR has limitations:

• It assumes consistent returns and time frames.

• It doesn't account for unexpected events or unusually long retirements.

For example, a retiree who lives 35+ years post-retirement might run out under strict SWR rules—especially if early years are bad for markets.

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5. Smart Practices for Modern Retirees

1. Use diversified, inflation-adjusted portfolios combining debt and equity.

2. Reassess your withdrawal rate annually—versus sticking rigidly to a fixed amount.

3. Leave a multiplier buffer—create a cushion (e.g. ₹2.2 crore instead of ₹2 crore if market conditions are uncertain).

4. Prioritize liquidity and access—easier funds to access can help in downturns without forced selling.

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6. Key Insights—What Financial Authorities Say

• A Chartered Accountant highlights that early-market performance hugely affects remaining corpus value—even with the same average return.

• The 4% rule is helpful but not absolute; longevity and inflation can stretch it thin.

• Planning tools like retirement calculators and SWR models are smart starting points—but custom strategy beats cookie-cutter.

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7. Final Thoughts: It’s Not What You Have But How You Use It

Retirement isn’t just about accumulating wealth—it’s about preserving it. No matter how generous your money is, a smart distribution strategy makes the difference between lasting wealth and empty invoices.

So if you're planning retirement, ask:

• When should I start withdrawals?

• Should I adjust my monthly needs over time?

• Am I prepared for bad market stretches?

Thoughtful answers to these can keep you comfortable well into your golden years.