process
Spend A Safe Slice
The rule
In retirement, draw only a small, safe slice each year. Take too much, and one bad run of markets can empty the pot while you still need it.
Where it flips
A fixed low withdrawal can be too stiff. It may starve a retiree of spending in good years, or fail to cut back fast enough in terrible ones. So treat the safe rate as a starting guardrail. Adjust your spending as the pot and prices move.
Once you stop earning, the danger is spending too fast. A bad run of markets can then empty the pot while you still need it. A small yearly withdrawal, roughly a low single-digit percent of the pot, leaves enough invested to recover and keep paying you for decades. The rate you pick, more than the market itself, decides whether your money outlives you.
A worked example
With a ₹2 crore pot, Aarohi caps her first-year withdrawal near ₹7 lakh, not ₹16 lakh. That gives the pot room to ride out an early crash without running dry. [illustrative]
How to spot it
- ·withdrawal set by the lifestyle wanted, not the pot size
- ·no plan for a market crash early in retirement
- ·drawing a high single-digit percent every year
William Bernstein · The Four Pillars of Investing