The new retirement question: Can market believers also build a strong pension?

For investors who rely heavily on equities and mutual funds to build retirement wealth, the challenge does not end with creating a large corpus. The bigger question is how to convert market-linked wealth into a predictable income stream that can last through retirement without exposing essential expenses to market volatility.

Sabyasachi Sarkar, MD & CEO, Go Digit Life Insurance, said equities and mutual funds remain effective tools for long-term wealth creation and inflation-beating returns, but relying exclusively on them can expose retirees to market risks. “While equities and mutual funds are good financial products for long-term wealth creation and outpacing inflation, relying solely on them can pose market volatility-related risks during retirement,” Sarkar said.

According to Sarkar, pension products such as annuities address a different retirement need by providing income security. “By investing a lump sum with an insurer, you lock in a regular, reliable stream of income that continues for the rest of your life, regardless of market conditions,” he said. This can help address longevity risk — the possibility of outliving one’s retirement savings.

The strategy, therefore, need not be a choice between market-linked investments and guaranteed income products. Sarkar said investors should sequence them according to their stage of life. Younger investors can maintain greater exposure to growth assets to build their retirement corpus, while those approaching retirement can gradually convert a portion of their wealth into annuities to secure essential expenses.

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“As you near retirement, converting a portion of those funds into a fixed annuity secures your baseline lifestyle,” Sarkar said. He also pointed to variable annuities, which combine guaranteed pension features with the potential for market-linked growth.

Why market volatility matters

A major risk of depending entirely on market-linked investments is the possibility of a sharp downturn just as retirement begins. A sudden fall in equity markets can reduce the value of a portfolio precisely when an investor starts withdrawing money from it, potentially affecting the sustainability of retirement income.

Sarkar described annuities as an “economic shock absorber” that can protect core living expenses from market downturns. Fixed annuities can provide predictable payouts, while variable annuities can offer market-linked growth potential alongside a foundational payout.

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Retirement products can also help investors transition from accumulation to income generation. Under the National Pension System (NPS) framework described by Sarkar, subscribers retiring at 60 can withdraw up to 60% of their accumulated corpus as a lump sum, while at least 40% must be used to purchase an annuity from an approved life insurer.

Annuities can be structured according to retirement timing. An immediate annuity can begin payouts soon after a lump-sum investment, while a deferred annuity can provide income at a selected future date.

For couples, Sarkar highlighted joint-life annuities, under which income can continue for the surviving spouse after the primary annuitant’s death. “The strength of a joint life annuity lies in its continuity,” he said.

The broader message for investors is that retirement planning requires both wealth creation and income protection. Market-linked assets can help build the corpus, while an appropriate pension strategy can ensure that essential expenses remain funded even when markets are volatile.

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