How do you de-risk from outliving your savings?

In today’s world a nagging question for many Indians is, Will I have enough money to last through retirement?

It’s a valid worry. Life expectancy, already about 72.5 years, is expected to cross 85 by the end of this century. At the same time, healthcare costs are rising. And inflation? That’s silently eroding the value of our money year after year. A recent survey showed nearly 4 out of 10 working Indians fear they might outlive their savings. So, what can you do?

Long retirement years

If you retire at 60 and live till 85-90, retirement can easily last 25-30 years. That’s almost equal to your working life. Let’s say you plan to spend ₹50,000 a month in retirement or ₹6 lakh a year. Over 30 years it’s ₹1.8 crore without accounting for inflation.

Now add inflation at, say, 6 per cent. That ₹50,000 monthly budget could become ₹1.6 lakh in 20 years. And that’s why you need more than a “big enough” retirement corpus. You need a strategy that helps your income keep up with rising costs. Let’s look at some key risks which can erode your wealth.

Think ₹1 crore is enough? At 6 per cent inflation, the real value of that corpus halves in 12 years. To counter the effects of inflation, you should keep a portion of savings invested in inflation-beating assets that invest in equity market. Unit-Linked Pension Plans are specifically designed to help you build a retirement corpus which helps generate guaranteed income after retirement.

These plans work best if you start investing early. A ULIP Pension Plan has two phases: Accumulation phase and payout phase. During working years, you accumulate a big corpus by investing regularly and earning market-linked returns on the investments. And when you retire, you can withdraw a certain portion (up to 60 per cent) of corpus tax-free and also get regular guaranteed income from balance amount.

A great feature is you can invest in a mix of equity and debt funds and switch between them. So you can stay equity-heavy in accumulation phase for faster growth and when nearing retirement you can remain debt-heavy to preserve capital.

Medical inflation Healthcare costs in India are rising by 12–14 per cent annually. This problem has a simple solution: health insurance. A comprehensive health insurance policy with lifetime renewability can ensure you won’t have to dip into savings for any medical emergency. You must also explore topping up your insurance plan.

Longevity risk

If you’ve planned finances to last till 80 but live till 90, you could run out of money. The guaranteed regular income from Pension ULIPs on maturity ensures you get income for life irrespective of age.

Withdrawals Pulling out big chunks for lifestyle expenses or emergencies early in retirement can put strain on future needs. Unit Linked Pension Plans ensure at least 40 per cent of corpus is set aside to give you guaranteed return for life, thus securing your retirement.

Thus, Pension ULIPs help you to counter these risks by providing the flexibility of partial withdrawals allowed for specific life events, while the discipline of ensuring 40 per cent of the corpus is always set aside to give you guaranteed returns for life ensures you never run out of money. The rest can be withdrawn tax-free under Section 10 (10A) and Clause 23AAB of the Income Tax Act, 1961

You can also consider National Pension Scheme (NPS), a government-backed plan which allows up to 75 per cent of contributions to be invested in market-linked instruments with balance in safer debt options. Once you hit 60, at least 40 per cent of the corpus goes into an annuity, giving a steady, guaranteed income for life.

A checklist

Figure out how much monthly income you need to live a comfortable life post retirement. Then use the 4 per cent rule to arrive at the corpus size. For example, if you need ₹50,000 every month, then you need a corpus of ₹1.5 crore. But if you are expecting to retire after a decade or two, you need to adjust this number for inflation.

Rupee cost averaging markets go up and down. But over time, consistent investing pays off. By consistently investing in unit-linked pension plans you ensure you earn higher number of units when markets fall and lower number of units when markets rise. This helps grow your corpus irrespective of market conditions. That’s rupee cost averaging. So start early, stay consistent and let compounding do its magic.

Investing early

Starting to invest early helps save more and investments get time to grow. With right planning, retirement can be one of the most rewarding chapters of your life.

(The writer is head, Investments, Policybazaar.com)

Published on June 1, 2025