Two Retirees, Rs 2 Crore Savings Each: CA Explains Why Their Financial Futures Look So Different

A sizeable fund may not ensure financial security after retirement due to multiple factors. Even when the numbers look identical on paper for two colleagues or friends with a similar retirement corpus, the financial outcomes could be different. Chartered Accountant Abhishek Walia recently illustrated this through an example.

He cited the example of two retirees, each with savings of Rs 2 crore, both planning to withdraw Rs 1 lakh a month over the next 25 years. Yet one runs out of money by the age of 72, while the other still has funds left at 90 years.

According to Walia, the difference lies in what financial planners call sequencing risk.

“Two people retire with the same Rs 2 crore savings. Both plan to withdraw Rs 1 lakh a month for the next 25 years. By 72 years, one is broke. By 90 years, the other still has money. How? It's because of something called sequencing risk,” he wrote in a LinkedIn post.

Walia broke it down further with two contrasting scenarios. “Person A retired just as the market crashed. For the first five years, returns were negative. They kept withdrawing Rs 1 lakh a month. The portfolio shrank so much that even when markets recovered, it never bounced back fully,” Walia noted.

In comparison, Person B had the good fortune of retiring during a bull market. “The first five years gave strong returns. Their withdrawals hardly made a dent, and the portfolio grew enough to last decades,” he added.

Interestingly, both investors experienced the same average return of 10% over time and followed the same withdrawal plan. What differed was the order of returns, and that proved decisive. “Same average return (10%). Same withdrawal plan. Different order of returns. That's sequencing risk,” Walia stressed.

To address this risk, he suggests practical strategies that retirees can adopt. “Keep two to three years of expenses in safe debt/liquid funds before retirement,” he says. Another safeguard is the so-called bucket plan, dividing investments based on time horizon and risk appetite. “Follow a bucket plan: short-term needs in debt, long-term growth in equity,” Walia wrote.

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Flexibility, he said, is also key. Instead of sticking rigidly to fixed withdrawals regardless of market conditions, adjusting withdrawals during rough years can significantly improve the chances of preserving wealth over time.

Walia ended his post with a reminder that saving for retirement is only part of the equation. “Retirement planning isn't just about how much you save. It's about making sure your money survives the bad years that come too soon,” he suggested.

Walia's post serves as a cautionary reminder for those nearing retirement. It says that market timing and sequencing risk can be as critical as the amount saved.