Will Your Rs 2 Crore Retirement Corpus Last 20 Years? Expert Advice

Planning your retirement corpus is crucial. A Rs 2 crore fund may not last 20 years with high withdrawals. Experts suggest a bucket strategy for sustainable income. This involves allocating funds for immediate needs, stable income, and growth. Careful planning and realistic withdrawals are key to ensuring your retirement fund lasts.

Will your Rs 2 crore retirement corpus sustain for 20 years if you withdraw Rs 2 lakh/month? Determining the quantum of a withdrawal amount from a corpus is quite a big challenge as a wrong estimate can leave you short of funds during retirement. While withdrawing a low amount may be insufficient to meet your monthly expenses, investing in equity funds with expectations of a high withdrawal amount can be risky since market downturns may deplete your funds. Investing in low-risk instruments may not generate sufficient monthly income for you. In such a situation, what should be your monthly withdrawal amount from your Rs 2 crore retirement corpus to generate regular income for 20 years?

Monthly income from Rs 2 crore corpus

Here we present three monthly income withdrawal scenarios from Rs 2 crore retirement corpus to show how long your corpus will sustain or what will be the remaining corpus at the end of 20 years. The conditions are-

Withdraw Rs 2 lakh/month

Withdraw Rs 1 lakh/month

Withdraw Rs 1 lakh/month with 5% increase every month

Withdrawing Rs 2 lakh/month from Rs 2 crore corpus

Ashish Jain, CEO, Choice Connect, in his illustration shows that if we get 6% annualised return from our Rs 2 crore retirement corpus and withdraw Rs 2 lakh/month, our corpus will deplete in just 11 years.

Fixed monthly income of Rs 2 lakh for 20 years (6% annual return) (As per Ashish Jain, CEO, Choice Connect)

Year

Opening Balance

Closing Balance

1

₹2.00 Cr

₹1.88 Cr

4

₹1.61 Cr

₹1.46 Cr

8

₹95.93L

₹77.17L

11

₹36.12L

₹13.68L

12

₹13.85L

Depleted

In the second situation, let’s half our monthly withdrawal amount to Rs 1 lakh/month with expectations that the retirement corpus won't deplete.

Withdrawing Rs 1 lakh/month from Rs 2 crore corpus

Gibin John, senior investment strategist, Geojit Investments Limited, in his illustration shows that if a person withdraws Rs 1 lakh/month from a Rs 2 crore corpus, they can easily withdraw the monthly income for 20 years. At the end of 20 years, the remaining corpus will be Rs 1.73 crore

Fixed monthly income of Rs 1 lakh for 20 years (6% annual return) (As per Gibin John, Geojit Investments Limited)

Year

Opening Balance

Closing Balance

1

₹ 2 cr

₹ 1.99 cr

5

₹ 1.96 cr

₹ 1.95 cr

10

₹ 1.91 cr

₹ 1.90 cr

15

₹ 1.84 cr

₹ 1.83 cr

20

₹ 1.75 cr

₹ 1.73 cr

It is good that the corpus can sustain for 20 years, but at the end of it, you still have Rs 1.73 crore in your corpus. In such a way, you can easily increase your withdrawal amount. Secondly, a Rs 1 lakh/month may sound good today, but 20 years down the line, inflation will erode much of its value.

So, the third scenario is to start with a Rs 1 lakh/month withdrawal and increase the withdrawal amount by 5% every year to keep pace with inflation.

Rs 1 lakh/month withdrawal (with 5% annual step-up) from Rs 2 crore corpus

Ishkaran Chhabra, chief investment counsellor, founding partner, Centricity WealthTech, shows that if one starts with a Rs 1 lakh/month withdrawal and increase their withdrawal amount by 5% each year, at a 6% annualised return, their retirement corpus will end in 18 years.

Starting monthly income of Rs 1 lakh, increased by 5% every year (6% annual return) (As per Ishkaran Chhabra, Centricity WealthTech)

Year

Opening Corpus (₹)

Monthly WD This Year (₹)

Closing Corpus (₹)

1

₹ 2cr

₹1 lakh

₹ 1.99 cr

5

₹ 1.92 cr

₹ 1.21 lakh

₹ 1.88 cr

10

₹ 1.62 cr

₹ 1.55 lakh

₹ 1.52 cr

15

₹ 94.78 lakh

₹ 1.97 lakh

₹ 75.28 lakh

18

₹ 28.79 lakh

₹ 2.29 lakh

₹ 1.36 lakh

Two out of the three scenarios, we see that our Rs 2 crore corpus will finish before 20 years. In the third scenario, a Rs 1 lakh/month withdrawal may be insufficient in the future.

So, what should you do in such a scenario?

Experts suggest that to maintain sustainability for 20 years, one should follow the bucket strategy.

Bucket strategy for Rs 2 crore corpus

Chhabra says in the bucket strategy, you need to keep income required for immediate need (for 0-3 years) in savings account or liquid funds; money required from 3-10 years for predictable regular fixed income should be in schemes providing a fixed interest rate such as Reserve Bank of India bonds, Senior Citizen Savings Scheme; money required for 10-20 years can be invested in index mutual funds or balanced advantage funds for capital appreciation and inflation hedge.

Bucket strategy for Rs 2 crore retirement corpus (As per Ishkaran Chhabra, Centricity Wealth)

Bucket

Recommended Instruments

Allocation

Expected Return (p.a.)

Monthly Income

Bucket 1 (Immediate Liquidity) 0-3 years

Savings A/c, Liquid MF, Short FDs, SWP

₹ 40,00,000

5.50%

₹ 18,333

Bucket 2 (Stable Income) 3-10 years

SCSS, RBI Bonds, Debt MF, PPF

₹ 80,00,000

7.50%

₹ 50,000

Bucket 3 (Growth Engine) 10-12 years

Index MF, Balanced Advantage, REITs, NPS

₹ 80,00,000

12.00%

₹ 80,000

TOTAL

₹ 2,00,00,000

₹ 1,48,000

As per the expert, the person can withdraw a Rs 1.48 lakh/month income from a Rs 2 crore corpus to sustain it for 20 years. However, it depends on the type of returns you get from mutual funds and interest rates schemes provide in the long term.

Asset allocation for monthly income from Rs 2 crore corpus

Jiral Mehta, senior manager, Research, FundsIndia, says one needs to have an asset allocation with a combination of an asset class that provides good returns over the long-term but has short term volatility/instability with an asset class that provides average returns over the long-term but has stability over the short-term.

“We prefer an allocation of equity and debt, where the SWP can be set in such a way that during normal market conditions the withdrawal happens from the equity allocation. If there is any large temporary market fall, you stop the SWP from equity allocation and start the SWP from the debt allocation,” says Mehta.

Chhabra says for the stable-income portion, investors can consider fixed deposits and short-duration debt funds, while for growth, balanced advantage funds, multi-asset funds, flexi-cap funds and large-cap equity funds can help offset inflation over a long retirement horizon.

“Maintaining 1-2 years of expenses in liquid funds or savings instruments is also important to avoid forced withdrawals during market volatility,” suggests Chhabra.

Biggest mistakes to avoid while planning retirement

Jain says one should plan their retirement for 30 years and should run maths before making a plan.

Jain also suggests not to ignore inflation, stay away from over allocating funds to fixed deposit (FDs) and not to use retirement corpus for family goals.

Chhabra says the biggest mistake that most people make is to ignore inflation and assuming today's expenses will remain unchanged throughout retirement.

“Other common mistakes include underestimating healthcare costs, not maintaining an emergency liquidity buffer, withdrawing too aggressively in the early years, and overlooking the impact of taxes on post-retirement income,” says Chhabra.

Thus, you can see that retirement planning from a retirement corpus is not a random allocation. One needs to plan well, choose the right kind of investments, do not ignore inflation and should not underestimate the taxation part. They also need to be realistic in their withdrawals or else even a Rs 2 crore corpus can deplete in just 10-11 years.