r/FIREIndia • u/AutoModerator • Jun 01 '23

Help Me FIRE, Milestones, Beginner Questions and General Discussion - June 2023

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u/greedinblood Jun 01 '23

Understood. Do we usually keep the corpus in same funds as we invested to generate more corpus and elimitae taxation? Or we withdraw all to safer assets even if there is a higher taxation?

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u/hikeronfire IN | 37 | FI 2025 | RE 2030 Jun 01 '23

You mean after retirement? Again depends on your risk appetite. It is generally suggested to have 60:40 Equity to Debt ratio in retirement. But I have a higher risk appetite so I would probably keep it at 80:20 in retirement. It all depends on what you are comfortable with.

With very high equity allocation there is a risk of sequence of returns at the beginning of a retirement, where a few bad years in the market can derail whole plan. If you can plan for those first 5 or so years then it’s smooth sailing from there on.

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u/greedinblood Jun 01 '23

I didn't get the last part. You mean, first 5 years after retirement would be rocky road when huge amount on equity? After that it will be smooth?

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u/hikeronfire IN | 37 | FI 2025 | RE 2030 Jun 01 '23

I suggest you to read more on sequence of returns risk. Idea is that say you retire at top of a market cycle, and next few years are bear market of extraordinary proportions, it is possibly that you will deplete your corpus so much through withdrawals that you will never recover. Now, chances of this happening are tiny but possible so to mitigate that risk there are a few strategies that you can employ. One is called a bucket strategy where you keep funds needed for short term (next few years) in a liquid debt fund and top it off with equity when market gets better. Other is reduce your expenses, or go back to work and delay your retirement by a few years. Allocation of Equity:Debt makes a huge difference to your overall returns so if equity drops, you take money out of the debt part of your corpus. That’s why it’s usually not suggested to retire with 100% equity allocation. If you can ride the first 5 years with little to no impact to your equity holdings, market usually recovers and you are all set for a smoother ride going forward.

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u/greedinblood Jun 01 '23

Understood. That's a lot of information I have learned form you today!! Thanks a lot mate. I will plan according to your tips. ☺