Is a 4% withdrawal rate safe in India?
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On the assumptions Phase 2 opens with, savings spent at 4% of their value in the first year, with spending rising 7% a year with prices, last 30 years in 36% of 2,000 simulated markets and 40 years in 22%. At 3% they last 30 years in 65% of them and 40 years in 46%. Whether that is safe enough is yours to judge; the table shows the rest.
How often savings last
₹3.00 Cr of savings, spent from Phase 2’s three buckets: in how many of 2,000 simulated markets they last each number of years.
| Withdrawal rate, first year | Spending a month, first year | With steady returns, spendable savings run out in | 25 years | 30 years | 35 years | 40 years | 50 years |
|---|---|---|---|---|---|---|---|
| 2% | ₹50,000 | year 71 | 97% | 91% | 83% | 76% | 65% |
| 2.5% | ₹62,500 | year 48 | 90% | 80% | 69% | 61% | 49% |
| 3% | ₹75,000 | year 37 | 80% | 65% | 54% | 46% | 35% |
| 3.5% | ₹87,500 | year 30 | 67% | 51% | 40% | 33% | 24% |
| 4% | ₹1,00,000 | year 25 | 52% | 36% | 27% | 22% | 15% |
| 4.5% | ₹1,12,500 | year 22 | 37% | 24% | 18% | 14% | 10% |
| 5% | ₹1,25,000 | year 19 | 26% | 16% | 11% | 8% | 5% |
| 6% | ₹1,50,000 | year 16 | 9% | 5% | 3% | 3% | 2% |
Each share is Phase 2’s own answer for that plan with Simulated markets on. For 4% and 30 years it says: “In 2,000 simulated markets, your savings last all 30 years in 36%. Spendable savings run out by year 17 in 1 in 10 of them, by year 26 in half, and by year 75 in 9 in 10.”
With flat tax rates, as here, only the rate matters: twice the savings and twice the spending give the same shares.
What the figures assume
Phase 2’s sample as it opens, with only the savings, the spending and the years changed: an emergency fund of 12 months and Buckets 1 and 2 of 18 and 48 months of spending, with Bucket 3 the rest; returns a year before tax of 9% for large-cap equity, 10% mid/flexi-cap equity, 6% bonds and gilts, 5.5% ultra-short debt and 5% liquid and arbitrage; prices rising 7% a year; and tax at flat rates on the gains in what is redeemed, 12.5% on equity and 30% on debt.
In each market, each year’s return is drawn at random around the one typed, which is the middle of its spread, with a market volatility of 18%, 22%, 4%, 2% and 1% a year in the same order. The two equities move together, as do the three kinds of debt; equity and debt are drawn separately. Inflation stays as typed. The 2,000 markets are the same for every plan, so any two plans meet the same markets.
Reading the table
- The longer you plan for, the more it matters: at 4%, savings last 25 years in 52% of the markets and 50 years in 15%.
- Prices rising 7% a year while debt earns 5% to 6% before tax weigh on every row: the years of spending kept in Buckets 1 and 2 lose ground every year. For the same savings spent from one pot, see The three-bucket retirement strategy.
- Your own figures can move these shares a long way: other returns, inflation, tax or bucket sizes.
Run it on your own figures
Simulated markets (Pro) in Phase 2 · Burndown runs your own plan through the same 2,000 markets and gives the same line for it.
Both calculators also work in dollars, with US federal tax brackets.
Questions
What withdrawal rate lasts 30 years in India?
On Phase 2’s sample assumptions, savings spent at 3% in the first year last 30 years in 65% of 2,000 simulated markets, and at 2% in 91%. Your own returns, inflation and tax change that.
Does the 4% rule work in India?
The 4% rule came from US markets and US inflation. With prices rising 7% a year and the returns Phase 2’s sample assumes, 4% lasts 30 years in 36% of 2,000 simulated markets. Test your own figures in Phase 2.