Case 055Retirement, withdrawals and life eventsCore
Rohini Bhagwat, 55, has Rs 1.1 crore, 85% in equity, and retires at 60. Draw her de-risking schedule and show what a 35% equity fall at 59 does to her corpus with and without the glide path.
1The situation
Rohini Bhagwat is 55, a school principal who will retire at 60 with a pension that covers basic expenses. Her savings of Rs 1.1 crore sit 85% in equity funds and 15% in a short duration debt fund. From 60 she plans to withdraw about Rs 6 lakh a year to cover travel, her daughter's wedding costs and medical top-ups.
Her distributor suggests moving gradually to 40% equity by 59. For the illustration, assume equity earns 11% a year and debt 7%, the portfolio is rebalanced each birthday, and in the year from 59 to 60 equity falls 35%.
2Your task
Set out the de-risking schedule, show the corpus at 60 with and without it when the fall arrives, and say what the glide path costs if the crash never comes.
Quick check
Roughly how much of her corpus does the crash at 59 destroy if she stays at 85% equity?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
With the glide path the crash at 59 costs about Rs 16 lakh and she retires with Rs 143.5 lakh; without it, it costs Rs 47 lakh and leaves Rs 116.5 lakh. The schedule steps equity from 85% to 72%, 60%, 50% and 40%. If no crash comes, de-risking costs about Rs 7.6 lakh of growth. That is the premium for insurance against the one year that matters most.
Step 1Why does the timing of a crash matter more at 59 than at 35?
A cricketer can survive a bad over early in a long innings; the same over in the last one decides the match. A fall just before retirement hits the largest the corpus will ever be, and leaves no salary years to buy back in cheaply. Planners call this sequence riskThe risk that poor returns arrive at the worst moment, just before or after withdrawals begin, doing far more damage than the same returns earlier.. At 35, a 35% fall on a small corpus is recovered by years of saving; at 59 it is locked in by the first withdrawal.
Step 2What does the schedule look like, and what does the crash do?
Step the equity share down each birthday: 85% at 55, 72% at 56, 60% at 57, 50% at 58 and 40% at 59, rebalancing through the debt fund. Most of the move happens early enough that she is not selling after a fall. The steps can be done by redirecting new money, by switching gradually, or by a systematic transfer plan, depending on her tax position.
The crash costs Rs 46.9 lakh without the glide path and Rs 15.6 lakh with it, because the damage depends on how much equity is held when it arrives. The gap at 60 is Rs 27.0 lakh. Translate it into her plan: Rs 6 lakh a year is 4.2% of the glide path corpus but 5.1% of the other, a withdrawal rate that makes running out far more likely over a retirement that could last 30 years.
| Rs lakh | 85% equity throughout | Glide path |
|---|---|---|
| Corpus at 59 | 163.4 | 159.1 |
| Corpus at 60 after the crash | 116.5 | 143.5 |
| Loss in the crash year | 46.9 | 15.6 |
| Corpus at 60 if no crash | 180.4 | 172.8 |
| Rs 6 lakh as % of corpus after the crash | 5.1% | 4.2% |
Step 3What does the glide path cost if nothing goes wrong?
Run the same five years without the crash. Staying at 85% reaches Rs 180.4 lakh, the glide path Rs 172.8 lakh. She gives up about Rs 7.6 lakh of possible growth to avoid a possible loss of about Rs 27 lakh, and she cannot know in advance which year she will get. The returns here are assumptions, not forecasts, and a retiree still needs some equity for a retirement lasting decades; 40% at 60 keeps growth in the plan. The glide path trades a little upside for a lot of certainty exactly when certainty is worth most.
Where candidates lose it
Candidates apply the 35% fall to the whole corpus, getting a loss of about Rs 57 lakh, or to the starting Rs 1.1 crore. The fall applies to the equity actually held at 59, which is the whole point of de-risking.
The other miss is de-risking to zero equity. A 60-year-old may live 30 more years, and a corpus with no growth asset faces inflation instead of crashes; the glide path lowers equity, it does not remove it.
What the interviewer asks next
- What if the crash came at 56 instead? Does the glide path still help as much?
- How would you do the switches to limit capital gains tax?
- She receives a Rs 20 lakh gratuity at 60. Where would you put it, and why?
Company names and figures are illustrative.