Drawing an income
Building a corpus is half the job. Turning it into income that lasts as long as you do is the other half.
The bucket approach
Split the corpus into three buckets. Bucket 1: two to three years of expenses in cash, liquid funds and short-term deposits, for monthly spending. Bucket 2: the next five to seven years, in conservative hybrid or debt funds. Bucket 3: the rest, in equity, for growth over the long retirement ahead.
Refill bucket 1 from bucket 2 and bucket 2 from bucket 3, ideally after good years for equity. You never have to sell equity in a crash to pay the bills.
Bucket 1: spend
2–3 years of expenses in cash, liquid funds, short deposits.
Bucket 2: stabilise
Next 5–7 years in conservative hybrid and debt funds.
Bucket 3: grow
The rest in equity, refilling the others after good years.
SWPs, annuities and schemes
A systematic withdrawal plan pays a monthly amount from a mutual fund; only the gain in each withdrawal is taxed. Annuities convert a lumpsum into guaranteed income for life, at the cost of flexibility. SCSS and POMIS provide government-backed monthly or quarterly income within limits.
Sequence risk
A big market fall in the first few years of retirement does far more damage than the same fall later, because you are withdrawing while prices are low. The cash buckets exist precisely to protect those early years.
Key takeaways
- 1Use buckets so crashes never force equity sales.
- 2Mix SWPs, annuities and government schemes.
- 3Protect the first years of retirement from sequence risk.
Try it with your own numbers
Finish this lesson
Reaching the end marks it complete. You can also mark it yourself.
Educational content, not investment advice. Figures are illustrative.