Anil and Anjali Iyer (an illustrative profile) retired last year in Aundh, Pune. Anil is 61 and Anjali 60. Between EPF, NPS, mutual funds and savings, they have a corpus of ₹3 crore, and they need about ₹75,000 a month. For 35 years a salary arrived on the first of every month. Now Anil lies awake wondering, "What if the market falls 25% next year?"
Reaching the corpus is half the job. Drawing it down safely for 25 to 30 years, while keeping up with prices, is the other half. This chapter shows how to build a retirement paycheque that does not depend on what the market does in any one year.
In this chapter
- Sequence-of-returns risk and why timing matters once you start withdrawing
- How the three-bucket plan works, with the Iyers' numbers
- SWPs, annuities, SCSS and POMIS compared
- How much to withdraw each year and when to adjust
The biggest risk: bad years at the wrong time
While you are saving, a market fall is an opportunity to buy cheaper units. Once you are withdrawing, the same fall forces you to sell more units to raise the same income, and those units are not there when markets recover. This is called sequence-of-returns risk: the order of returns matters, not just their average.
The table shows the same ten yearly returns (averaging 7%) applied to ₹1 crore, with ₹6 lakh withdrawn in year one and rising 6% a year. Only the order changes.
| Scenario | Returns in years 1–2 | Returns in years 9–10 | Corpus after 10 years |
|---|---|---|---|
| Bad years first | −20%, −8% | +13%, +14% | about ₹45 lakh |
| Bad years last | +14%, +13% | −8%, −20% | about ₹98 lakh |
Same returns, same withdrawals, and a difference of more than ₹50 lakh. The rest of this chapter is about making sure a bad start does not force you to sell growth assets.
The three-bucket plan
A bucket plan divides the corpus by when you will need the money. Near-term money is kept safe; long-term money is allowed to grow.
| Bucket | Holds | Typical instruments | Job |
|---|---|---|---|
| 1. Income | 2–3 years of spending | Savings, sweep-in deposits, liquid and money-market funds | Pays your monthly income |
| 2. Stability | Roughly years 3 to 10 | SCSS, POMIS, short and medium-term debt funds, conservative hybrid funds, bonds | Refills Bucket 1 steadily |
| 3. Growth | Years 10 and beyond | Diversified equity and hybrid mutual funds | Beats inflation over the long run |
You draw income from Bucket 1. Once a year, you refill it from Bucket 2. In good market years, you move some gains from Bucket 3 into Bucket 2. In a bad year, you leave Bucket 3 alone and let Buckets 1 and 2 carry you. Think of it like a household water system: the tap draws from the kitchen tank, the kitchen tank is refilled from the overhead tank, and the overhead tank is refilled only when the municipal supply is flowing.
Worked example: the Iyers' buckets
Inputs: corpus ₹3 crore; spending ₹75,000 a month, or ₹9 lakh a year; SCSS at 8.2% for October to December 2026. Amounts are rounded and illustrative.
- Check the withdrawal rate. ₹9 lakh ÷ ₹3 crore = 3%, within the cautious 3 to 3.5% range.
- Bucket 1: 2.5 years × ₹9 lakh = ₹22.5 lakh in savings and liquid funds.
- Bucket 2: about ₹70 lakh. Of this, Anil puts ₹30 lakh, the SCSS maximum, into SCSS, which pays ₹30 lakh × 8.2% = ₹2.46 lakh a year, or ₹61,500 every quarter. Anjali, now 60, can open her own SCSS account too. The rest goes into debt and conservative hybrid funds.
- Bucket 3: ₹3 crore − ₹22.5 lakh − ₹70 lakh = ₹2.075 crore in diversified equity and hybrid funds.
- Yearly routine: each April, top Bucket 1 back up to 2.5 years of spending from Bucket 2 and SCSS interest, and rebalance Bucket 3 if markets did well.
The income tools compared
Systematic Withdrawal Plan (SWP): a fixed amount is redeemed from a mutual fund every month. Because each withdrawal is partly your own capital and partly gain, only the gain portion is taxed. For example, if ₹40,000 a month comes from an equity fund and 35% of each withdrawal is gain, the yearly gain is ₹1.68 lakh. If held over 12 months, the first ₹1.25 lakh of long-term gains is exempt and the remaining ₹43,000 is taxed at 12.5%, about ₹5,600 including cess. The same ₹4.8 lakh earned as interest would all be taxable at your slab.
Annuity: a lump sum paid to an insurer in exchange for a lifelong income. It removes the risk of outliving your money, but most annuities pay a fixed amount that loses purchasing power, and the purchase usually cannot be reversed.
SCSS and POMIS: government schemes through post offices and banks. SCSS (for those 60 and above, with some exceptions for retirees from 55) pays quarterly interest; POMIS pays monthly interest.
| Tool | Rate or return | Limit | Tax | Inflation protection |
|---|---|---|---|---|
| SCSS | 8.2% (Oct–Dec 2026), fixed for the term | ₹30 lakh per person | Interest at slab | No |
| POMIS | 7.4% (Oct–Dec 2026) | ₹9 lakh single, ₹15 lakh joint | Interest at slab | No |
| Mutual fund SWP | Market-linked | None | Only gains taxed | Partly, via growth assets |
| Annuity | Fixed at purchase | None | Income at slab | Usually no |
How much to withdraw: Start with about 3 to 3.5% of the total corpus in the first year, raise it with inflation, and review every year. If markets have had a poor year, skip that year's inflation increase. This small flexibility makes a large difference to how long the money lasts.
Common mistakes to avoid
- Keeping everything in fixed deposits. It feels safe, but interest taxed at slab and fixed returns can lose ground to inflation over 25 years.
- Running an SWP from an all-equity portfolio with no cash buffer. A crash then forces sales at low prices.
- Withdrawing too much in the early years. Big purchases in the first few years can push the withdrawal rate well above a sustainable level.
- Putting the whole corpus into an annuity. It locks in a fixed income that inflation erodes and leaves nothing flexible for emergencies.
Try this yourself: Take your expected or current retirement corpus and yearly spending. Work out your withdrawal rate. Then size your three buckets: 2 to 3 years of spending in Bucket 1, roughly 7 more years in Bucket 2, and the rest in Bucket 3. Note which of your current investments would fall into each bucket and where the gaps are.
Frequently asked questions
What is the best way to get a monthly income from a retirement corpus?
Most retirees combine a few sources: dependable income such as a pension, annuity or SCSS interest for essentials, and SWPs from mutual funds for the rest. A bucket plan keeps two to three years of spending safe so that market falls do not disrupt income.
Is SWP better than a fixed deposit for retirees?
An SWP is often more tax-efficient because only the gain portion is taxed, and it allows part of the money to stay in growth assets. But its value fluctuates, so it suits money that is not needed for several years. Fixed deposits are simpler and stable, with interest taxed in full.
How much can I invest in SCSS?
Up to ₹30 lakh per individual. Spouses who are both eligible can each open their own account, giving a combined ₹60 lakh. The rate is reset quarterly for new accounts and stays fixed for the term once you invest.
Should I buy an annuity with my retirement money?
An annuity can be useful for a portion of essential spending because it pays for life. Using the whole corpus is usually not ideal because most annuities do not rise with inflation and cannot be reversed.
See a full worked plan in our retirement income strategy guide, and compare pension, rent and SWP over 25 years in this comparison.