When you retire, your main source of income becomes the fund you have saved over the years, known as your retirement corpus. You withdraw from this corpus to cover your daily living costs and other expenses. But an important question is how much or at what rate can you safely withdraw from your savings so you don’t run out of money too soon?
This is where the Safe Withdrawal Rate (SWR) helps. SWR is one of the most elegant concepts of retirement planning which helps you to calculate the amount you can safely withdraw from your retirement corpus so that your money lasts throughout your retirement. In this article, we will talk about Safe Withdrawal Rate, how it works and how you can calculate your SWR to enjoy your retirement without worrying about running out of funds.
What is a safe withdrawal rate?
Most people think of retirement as a lump sum they’ll spend down over time without a systematic plan. But SWR offers a systematic way to do it.
The Safe Withdrawal Rate (SWR) is the percentage of your retirement savings that you can withdraw every year, with the goal that your money will last throughout your retirement.
The Safe Withdrawal Rate (SWR) treats retirement income as a living, flexible process. Your corpus, returns, withdrawals, inflation, and life expectancy all interact to decide how long your retirement corpus will last.
To maintain the purchasing power of these withdrawals over time, the amount is increased each year to match inflation. This means that after the first year, the withdrawal amount will be adjusted upwards based on the inflation rate.
For example, a 3% safe withdrawal rate on a ₹1 crore corpus would allow you to withdraw ₹3 lakhs in your first retirement year. In subsequent years, your withdrawals increase with inflation, if inflation is 6%, your second-year withdrawal would be 3 lakhs + 6% (inflation rate) and hence ₹3.18 lakhs, independent of how your portfolio actually performs.
This inflation adjustment preserves purchasing power. Your money continues to buy the same amount of goods and services over time as it's adjusted to inflation.
Should you follow a generic SWR like 4%?
A lot of people in India follow a simple rule—like withdrawing 4% of their retirement savings every year. But here’s the thing: this 4% rule actually comes from studies done in the U.S., based on how their markets and economy work. It doesn’t fit well with India’s situation at all. If Indian retirees just copy this rule, it could be risky and might not help them plan properly.
Research studies done by Raju Sarogi shows that in India, a safer withdrawal rate is actually much lower—usually between 3to 3.5%. If someone uses the 4% rule here, they might run out of money faster or face money problems later in retirement. Instead of blindly following a generic rule, it’s much better to plan withdrawals based on how Indian markets work, personal risk levels, and individual retirement goals.
How to find your Safe Withdrawal Rate (SWR)
SWR cannot be the same for everyone. It depends on a few key things.
- How long you will be retired
The first step is knowing how long your money needs to last. If you retire early, say in your 50s, your retirement could last 35–40 years. That’s a long period for your investments to support your retirement life. In such a case, a lower withdrawal rate is safer.
On the other hand, if you retire later, say at 68 or 70, you might only need the portfolio to sustain you for 20–25 years. In that case, a slightly higher withdrawal rate could still be sustainable.
- Your asset allocation
How the money in your portfolio is invested is one of the most important factors that determines your SWR. For instance, how much of your portfolio is invested in high risk, high return options like equities, or conservative options like fixed deposits or bonds, does it include a hedge like gold or a source of passive income such as real estate. This has a huge impact on your SWR.
1 Finance India Macroeconomic Indicators (1FMI) shows that a diversified or “balanced” portfolio, one that mixes equity (stocks), debt (bonds), and perhaps some real estate or passive income assets, helps your corpus survive longer across rate of withdrawals..
- If you take out a small percentage each year (around 4% of your corpus), almost any portfolio has a good chance of lasting for the full retirement period.
- As you start taking out more every year (5–6% of the corpus), very safe, debt‑heavy portfolios start failing more often because their returns are too low.
- In that higher‑withdrawal zone, portfolios that have a decent amount of equity (balanced or equity‑heavy) usually give a much better chance that your money will not run out, because they have higher expected long‑term returns
One should be careful with overdoing equities, specifically if retirement years are near. In the early years of retirement, if markets fall sharply while you’re withdrawing money, your portfolio could deplete faster (known as sequence of returns risk).
- Personal circumstances
Your SWR will be highly influenced by how you withdraw your retirement money and at what frequency.
Factors such as your expected living costs, whether you have pension income or not, healthcare expenses, which usually rise with age. Financial support for dependents or lifestyle goals like travel, hobbies, relocation, etc, plays a very important role.
You can afford a higher SWR if you have a modest lifestyle or less financial obligations. But if you expect large or unpredictable expenses, it’s better to stay conservative.
- Taxes and account structure
If your money is in taxable accounts, mutual fund dividends, stock sales, or interest-bearing deposits, capital gains and income taxes can reduce your effective withdrawal rate especially in moderate tax brackets.
Withdrawals from certain retirement accounts (like NPS Tier 1 or provident funds) might enjoy tax benefits.
This is why it's very important to have good tax planning, like prioritising withdrawals from low-tax or tax-free sources, can meaningfully increase your sustainable income.
These things are hard to navigate. Having a Qualified Financial Advisor who can help you understand tax implications on your withdrawals is very important. Book a free meeting now!
- Market conditions and economic environment
Even the timing of your retirement plays a major role in deciding your safe withdrawal rate. For example, if you retire during a market boom, when stock prices are at record highs and interest rates are unusually low, future investment returns may be muted. That’s because markets often go through cycles: periods of strong growth are usually followed by phases of correction or slower returns. In such times, your portfolio might not grow fast enough to sustain large withdrawals, so being conservative (perhaps starting with a lower SWR) protects you from depleting your funds too early.
On the other hand, if you happen to retire when markets are undervalued, say, after a correction, or when interest rates are stable and bond yields are reasonable, your portfolio has a better chance of generating stronger returns in the coming years. That gives you more flexibility and allows for a slightly higher withdrawal rate without taking on excessive risk.
How you withdraw will depend on how you invest. Hence the right retirement planning is the key.
If your investments are too risky, your withdrawals might not be sustainable. If they’re too conservative, you might not earn enough to keep up with inflation. That’s why proper retirement planning is so important. Good planning means understanding your goals, financial personality, and how much you’ll need each year. It helps you pick the right mix of assets, like stocks, bonds, and fixed deposits, so your money lasts as long as you need it. Retirement planning also lets you adjust for inflation, medical costs, and lifestyle changes. Without a clear plan, you could end up either spending too much too soon or living too frugally. This is why planning your retirement with a Qualified Financial Advisor is very important. Book a free call now.
Conclusion
This dynamic approach recognises that fixed withdrawals can be unrealistic over long retirements. By monitoring your portfolio and adjusting spending based on market performance and personal needs, you can maintain financial security while enjoying flexibility. It is a more practical and psychologically sustainable way to manage withdrawals rather than rigidly following the initial rate.
