How much can you safely spend from your retirement corpus?
In 2022, I attempted to answer this question by building a retirement simulator based on Indian market data to calculate the safe withdrawal rate (SWR). In subsequent research, I extended these simulations across different asset classes and retirement lengths.
Given the complexity involved, simulations were a natural choice. However, they come with a drawback: they can feel like a black box. While a simulator produces an output, it does not always offer intuition about why a particular withdrawal rate works.
It also makes quick, practical calculations difficult. If a client asks, “What if I retire five years earlier?” or “What if I raise my equity allocation from 40% to 60%?”, the usual response is to rerun the simulator and interpret a new result.
To address this limitation, my new research derives a formula that can calculate SWRs without resorting to complex simulations. Instead of pressing a button and accepting the result, retirees and advisers can now estimate withdrawal rates more transparently.
The formula needs just two inputs—equity allocation and the length of the retirement period—and produces a near-accurate SWR that can be used for planning.
Statistically, the equation is 99% accurate. The difference between SWRs generated by the formula and those derived from simulations is typically around 0.10 percentage points. If the “true” safe rate from a simulator is 3.5%, the formula usually produces a value between 3.4% and 3.6%.
Pattern search
To derive this equation, I returned to the simulation engine and ran tens of thousands of simulations across multiple combinations of equity allocation—from 0% to 100%—and retirement lengths ranging from 10 to 100 years. This produced a large dataset of SWRs for each equity mix and time horizon.
The next step was identifying patterns in the data, which would guide the structure of the formula. Three clear trends emerged.
First, the safe withdrawal rate declines as the retirement period lengthens. A 20-year retirement can sustain a much higher withdrawal rate than a 40-year retirement.
Second, for any given horizon, the highest sustainable withdrawal rate is typically achieved at a moderate equity allocation.
Third, there appears to be a floor to SWRs. When simulations are extended to extreme horizons—150 or even 200 years—the safe rate stops falling and flattens out around 1.8%–1.9%.
The resulting equation captures these patterns. Its value lies not just in convenience but in intuition. It makes clear how the withdrawal rate responds to changes in inputs. Lengthen the retirement horizon and the rate falls. Increase equity from very low levels and the rate rises, but push equity too high and the withdrawal rate begins to decline.
Worked example
Consider a retiree planning to hold 40% of their portfolio in equity over a 30-year retirement. Plugging these inputs into the formula gives an SWR of 3.56%, very close to the simulated SWR of 3.60%. For a ₹1 crore corpus, this translates to a first-year retirement income of ₹3.56 lakh, adjusted for inflation each year.
If the retirement horizon is extended to 40 years while keeping the same equity allocation, the formula yields a lower SWR of 2.89%. In effect, adding 10 more years to retirement reduces the first-year withdrawal from ₹3.56 lakh to ₹2.89 lakh.
This intuitive formula can encourage more Indian retirees and planners to think systematically about safe withdrawal rates rather than relying on rough heuristics. While simulations will always remain essential for detailed planning, distilling a complex engine into a simple equation makes retirement planning more transparent—and conversations far more informed.
Ravi Saraogi, CFA is a Sebi-registered investment adviser and co-founder of Samasthiti Advisors.
