A retirement corpus of ₹5 crore may look secure, but poor withdrawal planning can drain wealth through taxes. Financial planners highlight that the way retirees withdraw money matters as much as investment returns.
If a retiree withdraws ₹35 lakh annually from fixed deposits, the entire amount is taxed as income. Over 20 years, this can lead to taxes of about ₹1.26 crore, with an effective rate near 18%. Fixed deposits, though safe, push retirees into higher tax brackets.
Smarter investors use tax-efficient options like arbitrage funds or equity-oriented schemes. Here, withdrawals are split between principal and capital gains. Only the gains are taxed, and the first ₹1.26 lakh of gains each year is tax-free. The rest is taxed at just 12.5%. This reduces annual tax significantly.
Over two decades, structured withdrawals cut tax liability to around ₹87 lakh, saving nearly ₹90 lakh compared to fixed deposits. Wealthy retirees often combine strategies mixing equity and debt, using the National Pension System, and leveraging exemptions under the old regime.
The key lesson: retirement planning is not just about earning returns but also about managing taxes. A disciplined withdrawal strategy ensures wealth lasts longer and reduces unnecessary tax outgo, making retirement more financially comfortable.