Retirement Corpus Calculator: How Much Will You Need?

Here are two retirement plans. Same corpus of ₹1.4 crore. Same withdrawal of ₹70,000 a month. Same twenty-five annual returns — not similar, identical, the exact same twenty-five numbers. One of them leaves ₹3.66 crore behind. The other runs out of money when the retiree is 75.

Nothing separates them except the order the returns arrive in. That is the single most consequential fact in retirement planning and it does not appear on any illustration anyone will show you, because the metric every illustration is built on is structurally incapable of containing it.

Padmini Sridharan is 61, retired last year as the manager of a public-sector bank branch in Coimbatore after thirty-four years, and is a composite — put together from the sort of person who has spent a career approving other people’s loan applications and has never once had her own plan stress-tested, not a real individual. Superannuation, provident fund and a lifetime of disciplined saving came to about ₹1.4 crore. The flat in Saibaba Colony is not for sale. ₹70,000 a month is what the household costs.

Why order does not matter, until suddenly it does

Start with the part that is genuinely reassuring, because it is true and it is where the confusion begins.

Take a lump sum, add no money, take no money out, and let it ride for twenty-five years. The ending value is the starting value multiplied by every year’s growth factor in turn. Multiplication does not care about order. Five years of minus ten per cent followed by twenty years of plus twelve gives you precisely the same number as twenty years of plus twelve followed by five years of minus ten. On ₹1.4 crore, both come to about ₹7.97 crore. Not approximately — exactly.

That is why nobody thinks about sequence during the saving years, and mostly they are right not to. Now take ₹8.4 lakh out at the start of every year and the arithmetic stops being commutative, because each withdrawal removes units that would otherwise have participated in whatever came next. Withdraw during a fall and you are selling more of the corpus to raise the same rupees. Do that five years running at the start and there is permanently less left to recover with.

The two paths, year by year

The returns used are five years of minus ten per cent and twenty years of plus twelve, in the two possible orders. Withdrawal is ₹8.4 lakh at the start of each year, not indexed to inflation, which makes both paths flatter than reality.

Bad decade first. Padmini takes her first ₹8.4 lakh out of ₹1.4 crore, leaving ₹1.316 crore, and the market takes ten per cent of that. By the end of year five the corpus is ₹51.7 lakh — she has drawn ₹42 lakh and lost ₹46 lakh. Now the good years arrive, and they cannot save her. Twelve per cent on a shrunken base is not enough to outrun a fixed ₹8.4 lakh. Year 10 closes at ₹31.4 lakh. Year 13 at ₹12.3 lakh. In year fifteen, at 75, the account cannot fund the year’s withdrawal.

Bad decade last. Same start. The twelve per cent years come first, and by the end of year 20 the corpus stands at ₹6.73 crore despite twenty years of withdrawals. Then the five bad years hit, and they barely register: the corpus finishes year 25 at ₹3.66 crore. She could have doubled her spending throughout and still died wealthy.

What the average said, and why it was useless

Here is the part that should unsettle anyone who has ever been handed a projection. Over the full twenty-five years, both sequences compound at exactly the same rate: about 7.2% a year. That number is not a lie, not a marketing figure, and not badly computed. It is the correct compounded annual return of both paths.

Now build the standard plan on it. Withdraw ₹8.4 lakh a year from ₹1.4 crore — a 6% opening draw — and grow the balance at a smooth 7.2%. The corpus never falls. It rises gently, year after year, forever. A spreadsheet using the true average return of the actual sequence concludes that Padmini’s plan cannot fail.

One of those two real sequences bankrupted her at 75.

This is not a criticism of the metric. A compounded return between two dates is exactly what it claims to be. The failure is in the use: it is a single number describing a path, and single numbers cannot describe paths. Which is precisely why every performance disclosure carries the warning that past performance is not indicative of future returns — the warning is usually read as “returns might be lower”, when the sharper meaning is “the shape might be different, and the shape is what decides this”.

What nobody tells the household, though the regulator tells the fund

There is an asymmetry here worth naming. SEBI’s Risk Management Framework for mutual funds, circular SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2021/630 dated 27 September 2021, lists among the mandatory elements of every AMC’s framework the implementation of scenario analysis and stress testing. The institution managing the money is required to model what happens when things go badly. It must maintain a risk metric per scheme, meet quarterly to review it, and appoint a Chief Risk Officer to own it.

None of that reaches the household. Padmini was shown an average. The fund managing her money was required by regulation to run the scenarios she was never shown.

The regulator has pushed some of that visibility outward. Following SEBI’s direction on small-cap and mid-cap schemes in February 2024, mutual funds now publish stress-test results for those categories, including the number of days it would take to liquidate a quarter and a half of the portfolio on a pro-rata basis, computed after setting aside the least liquid fifth of the holdings. For some small-cap schemes those numbers have run into weeks. That is a fact with a direct bearing on a retiree drawing income: your monthly withdrawal is a redemption, and in a stressed market you are standing in a queue whose length is now published.

The two numbers that actually decide it

The opening withdrawal rate is the decision, not the corpus. Padmini’s 6% draw destroyed her in the bad-first sequence. Cut the opening draw to roughly ₹42,000 a month, about 3.6% of the corpus, and run the identical disastrous sequence again: the corpus bottoms at ₹64 lakh in year five and then grows for the rest of her life. Same market, same crash, same person. The variable she controlled was the only one that mattered.

The cash buffer is sized in years, not rupees. Two to three years of spending held in something that does not fall when equity falls is not a return-drag decision, it is the mechanism that stops a bad opening decade from forcing sales at the bottom. Its job is to let the withdrawal come from somewhere else while the equity recovers.

A withdrawal rule beats a withdrawal amount. The plans that survive bad sequences are the ones with a rule attached: skip the inflation increase in any year the corpus fell, or cap the raise. Foregoing one year’s increase is a small sacrifice. Selling into a 30% fall to fund it is not.

What this does not mean

It does not mean equity is unsuitable for a retiree. The surviving path in every version of this arithmetic is the one that stayed invested; a corpus held entirely in cash loses to inflation with total reliability, which is a slower failure but still a failure. The problem is not owning equity, it is being forced to sell it.

It does not mean the numbers above are a forecast. Five consecutive years of minus ten per cent is a deliberately harsh stress, chosen because it makes the mechanism visible, not because it is likely. Real sequences are messier and mostly kinder. The purpose of a stress case is to find out which decisions are load-bearing, and the answer here — the opening withdrawal rate and the buffer — holds across gentler versions too.

And it does not mean averages are worthless. A compounded return is the right way to compare two funds over the same period. It is simply the wrong instrument for deciding how much a household can spend, because spending happens along the path and the average has no path in it.

The narrow, usable version: in the saving years, the order of returns genuinely does not matter, and you can safely ignore it. On the day you start withdrawing, order becomes the dominant variable in the whole plan, and nothing you were shown while saving prepared you for that. Padmini’s real risk was never the market. It was that the first ten years of her retirement would arrive in the wrong order, and no illustration she had ever seen contained that possibility.

Frequently asked questions

What exactly is sequence-of-returns risk?

It is the risk that the order in which returns arrive, rather than their average, determines whether a portfolio survives withdrawals. It exists only when money is moving in or out. With no cash flows, the ending value depends purely on the product of the annual growth factors, and order is irrelevant. Once you withdraw a fixed amount each year, a fall early on forces you to sell more units to raise the same rupees, permanently reducing what is left to recover, and the same fall arriving late does almost no damage.

Does this affect the years when I am still saving?

Much less, and in the opposite direction. Money going in during a fall buys more units, so a weak decade at the start of an investing life is generally helpful rather than harmful, provided the contributions continue. The danger concentrates in the years immediately before and after retirement, when the corpus is at its largest relative to future contributions and withdrawals are about to begin. That window, roughly the five years either side of the retirement date, is where sequence risk does nearly all of its damage.

Is a fixed withdrawal percentage safer than a fixed rupee amount?

Structurally yes, because a percentage of the current balance falls automatically when markets fall, which is exactly the behaviour that protects the corpus. The cost is that your income becomes variable at the worst moment, which is unlivable for a household with fixed obligations. Most workable plans sit between the two: a rupee amount for essential spending, funded from a buffer, with the discretionary portion flexed against how the corpus has actually done.

How do I stress-test my own plan?

Do what the regulator requires the fund to do to itself. Take your expected return, subtract three or four percentage points, and check whether the plan still works. Then take your assumed sequence and move the worst years to the front. If the plan only survives when the good years come first, it is not a plan, it is a hope with a spreadsheet attached, and the fix is almost always a lower opening withdrawal rather than a higher expected return.

Regulatory sources: the requirement that mutual funds implement scenario analysis and stress testing is set out in SEBI circular SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2021/630 dated 27 September 2021; SEBI’s direction on small-cap and mid-cap schemes dated February 2024, which led to the periodic publication of portfolio liquidation stress-test results, is recorded in SEBI’s compilation of policy letters and emails. The twenty-five-year reversed-sequence arithmetic, the commutativity comparison, the withdrawal-rate finding and the character of Padmini are this article’s own.

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Disclaimer: General information, not financial or investment advice. Linqz is not a SEBI-registered investment adviser. “Padmini Sridharan” is a composite character, not a real individual. The return sequences used are deliberately extreme illustrations chosen to expose a mechanism, not forecasts — your own outcome depends on your actual holdings, costs, taxes and spending, and past performance is not indicative of future returns.