Senior savings at risk? Advisor says Indian retirees must ditch the 4% withdrawal rule

The popular 4% retirement rule may be too optimistic for Indian retirees, says Ravi Saraogi, CFA and co-founder of Samasthiti Advisors, who warns that declining asset returns and limited market history demand a more cautious approach.

In a column for Mint, Sebi-registered investment adviser Ravi Saraogi challenged the reliability of applying Western retirement models to Indian conditions. He argues that India’s relatively short financial history and the downward trend in real returns undermine the assumptions behind the widely cited “4% rule.”

Developed by William Bengen in the U.S., the 4% rule assumes a retiree can withdraw 4% of their portfolio in the first year of retirement—adjusted annually for inflation—without running out of funds over 30 years. But this was based on over a century of U.S. financial data. India’s oldest index, the Sensex, only dates back to 1979, giving just 45 years of data—barely covering a typical retirement span.

Saraogi’s own analysis, based on all available rolling 30-year periods starting from 1979, initially found that historical safe withdrawal rates often exceeded 4%. However, he cautions against complacency. “India’s asset returns have steadily declined over time,” he wrote. “With both equity and debt returns trending lower, back-tested results may not just fail to predict future outcomes—they may actively mislead.”

Even falling inflation isn’t enough to counter the impact. Inflation-adjusted returns for balanced portfolios continue to shrink, putting future retirees at greater risk of exhausting their savings too soon.

To get a clearer picture, Saraogi turned to Monte Carlo simulations—forward-looking models that simulate thousands of possible return scenarios. In a 2022 study, he found that in nearly one-third of cases, withdrawing 4% led to premature portfolio depletion. A 2024 follow-up with Rajan Raju reinforced the finding, recommending a safer withdrawal range of 3% to 3.5%.

“In India, with a shorter and more flattering past, that luxury doesn’t hold,” he concluded, referring to the limitations of historical back-testing. “Retirees must look forward, not back. In this environment, prudence—not nostalgia—calls for a lower safe withdrawal rate.”