The Plainspeak / Retirement

Retirement · 4 min

The 3% rule for Indian retirees

Why the American 4% rule can bankrupt an Indian retiree, and the number that will not.

By 37xBetter · Last reviewed September 2026

Almost every retirement calculator assumes you can withdraw 4% of your corpus each year, forever. That number, the famous "4% rule", was a US research finding from the 1990s: a retiree who withdrew 4% of the starting portfolio, raised for inflation, usually lasted 30 years. It was never a law of nature. It was a study of American markets, American inflation, and American sequence-of-returns luck. India has higher inflation and a shorter record, so the honest safe number here is lower. Getting it wrong is the difference between money that lasts and money that runs out while you still need it.

Why a safe rate sits far below your return

A portfolio can average 11% over 30 years and still run dry, if the bad years arrive early. While you are drawing an income, a crash in the first few years sells units you can never buy back, and the recovery then happens on a smaller base. This is sequence-of-returns risk, and it is the whole reason a safe withdrawal rate sits well below your average return. Averages do not retire. You do, one year at a time.

What 4% actually does in India

On a smooth 9% return and 6% inflation, even 4% looks fine on paper. But retirements do not run on smooth averages, and the moment conditions turn, 4% gets fragile. On a ₹1 crore corpus, with withdrawals rising with inflation:

Method: the first year’s withdrawal is the stated percentage of ₹1 crore, raised each year by inflation, and taken at the end of the year after that year’s return. Taking it at the start of the year shortens every row by several years.

A 30-year retirement from age 60 reaches 90. At 4%, a single weak decade can leave you short, exactly when you can no longer go back to work.

What the research says

Indian studies by Rajan Raju and Ravi Saraogi (Balancing Acts, and Computing the Safe Withdrawal Rate for India) model real return sequences rather than a smooth average. They put the safe starting withdrawal near 3 to 3.5% for a 30-year retirement, against the American 4%. The rate is your first-year withdrawal, raised by inflation each year after. More equity can lift it a little, but the failure risk climbs sharply once you push past roughly 3.75%.

Flip the question: start from the income

Most people pick a corpus and guess the income. Flip it. Start from the monthly income you need, and a 3.5% safe rate tells you the corpus to aim for:

A ₹1 crore corpus safely supports about ₹29,000 a month, indexed to inflation. Not the ₹50,000 a 6% rule would tempt you to draw.

Three ways to make a higher rate safe

Keep a cash bucket. Hold 2 to 3 years of spending in liquid or short-duration debt. When markets fall, you spend from the bucket instead of selling equity at the bottom, which is what wrecks a retirement.

Stay flexible. In a bad market year, skip the inflation raise or trim spending by 10%. A willingness to flex in the down years lifts your safe rate more than almost anything else you can do.

Keep some growth. An all-FD retirement feels safe and loses to inflation across 30 years. Some equity is exactly what lets the corpus outlast you.

The other half is spending

Rate is only half the design. The corpus you need is a function of what you spend, so cutting a lifestyle you do not love is a higher-return move than squeezing another 0.5% out of the portfolio. Your corpus is only half the question. The withdrawal rate is the other half. And in India, that number is not 4%.