Withdrawals and SWP

How long will my retirement corpus last?

One ratio, the first year’s withdrawal as a percentage of the corpus, predicts more about the outcome than everything else combined.

Take your planned annual withdrawal, divide by your corpus, and you have the first-year withdrawal rate. Someone drawing ₹6 lakh a year from ₹1.5 crore is at 4%. Someone drawing the same amount from ₹80 lakh is at 7.5%. It is the same income and, in practical terms, two entirely different retirements.

What the 4% research actually says

The number comes from studies of historical US market data. The question asked was: what is the largest first-year withdrawal, escalated with inflation each year afterwards, that would have survived a 30-year retirement no matter which historical year you started in? The answer was around 4%.

That is a precise claim about a specific set of conditions, and it is worth reading carefully:

• The horizon tested was 30 years, not 45.
• The data was US historical returns and inflation, for a particular stock and bond mix.
• The criterion was not hitting zero, not remaining comfortable, and not leaving anything behind.
• It was gross of tax and fees, both of which come out of the same withdrawal.
• The withdrawal was mechanical: a fixed real income regardless of what markets did. Real retirees adjust, which in practice helps a great deal.

None of this makes 4% useless. It makes it a well-tested anchor for one particular case, which you should then move away from deliberately as your situation differs: down for a longer retirement or a more conservative portfolio, and up only with a clear reason and a plan for being wrong.

What the rate does in practice

Withdrawal rate is not a smooth dial. There is a region where the corpus comfortably outlives the plan, a region where it clearly fails, and a narrow band in between where the outcome swings enormously on small changes. Here is that band for a ₹1 crore corpus at an 8% return with the income rising 6% a year, the sustainable case:

Cutting the first-year withdrawal by a third, from ₹6 lakh to ₹4 lakh, adds fourteen years. No plausible improvement in returns does that. This is why the first-year withdrawal is the lever to pull when a plan does not work, and why the difference between a 4% and a 6% starting rate is a difference in kind rather than degree.

The other things that move the answer

• Escalation. The table above assumes the income rises 6% a year. Hold it fixed instead and the same ₹6 lakh withdrawal never depletes the corpus at all. SWP and inflation works through why.
• Post-retirement return. Most people de-risk at retirement, so the rate that matters is the one on the portfolio you will actually hold, often two or three points below the one you used while accumulating.
• Order of returns. Two portfolios with identical average returns can end up in very different places if one has its bad years first. See sequence-of-returns risk.
• Lumpy spending. A large one-off cost early in retirement removes capital that would have compounded for the whole plan. Model it as a retirement event rather than averaging it into the monthly figure.

Testing your own number

1. Enter your corpus and your genuine expected monthly spending in the SWP Calculator.
2. Set withdrawal growth to your inflation assumption. This is the step that makes the test meaningful.
3. Set the return to what you expect on your retirement portfolio, not your current one.
4. Set the duration to your realistic remaining lifespan, not thirty years by default.
5. Read the reported first-year withdrawal rate. If it is above 5%, treat the plan as needing a margin of safety rather than a decimal-place refinement.
6. Add the one-off costs you can actually foresee (a car, a medical event, a wedding) and run it again.

What "lasts" really means

A projection that ends with a positive balance has passed a low bar: it did not reach zero under one specific set of assumptions. It does not establish that you had a comfortable margin at any point, that you could have absorbed a shock in year 8, or that the assumptions were right. Treat "lasts the full plan" as the beginning of the analysis rather than the end of it, and pay more attention to how much room there was in the difficult years than to what was left at the finish.

This guide is educational and general. It is not financial, investment, tax or legal advice, and it takes no account of your circumstances. Every figure quoted is an illustration produced by the arithmetic described, not a forecast or a guarantee. Investment returns, inflation and market conditions are uncertain and will differ from any assumption used here. See the full disclaimer.