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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Miscellaneous Aspects of Retirement Planning

Mr. Iyer retires with a corpus of Rs 1,00,00,000 and plans to withdraw Rs 4,00,000 in year one, increasing withdrawals with inflation each year. This approach is best described as which withdrawal strategy?

This is the inflation-adjusted initial withdrawal rate approach. The first-year withdrawal is 4% of the starting corpus, and each later year's amount is increased by inflation, independent of the portfolio's current value, to maintain purchasing power.

  1. AFixed percentage of the current corpus each year
  2. BInflation-adjusted initial withdrawal rate (4% rule style)Correct
  3. CInterest-only withdrawal
  4. DBucket strategy with no inflation adjustment

Explanation

Rs 4,00,000 is 4% of the initial corpus of Rs 1,00,00,000, and later withdrawals are raised by inflation rather than recomputed on the corpus. That is the inflation-adjusted initial withdrawal rate approach. A fixed percentage of the current corpus would change with the portfolio value.

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