So, what can you do? Can you make your retirement corpus crash-proof? Or at least something that can cushion the blow of market shocks enough so that your cashflow during the retirement phase isn’t affected by the market fall?
Vinayak Magotra, product head & founding team, Centricity WealthTech, says that if you are looking to retire in a few years, it’s a good idea to start rebalancing your retirement portfolio at least 24 months ahead of your retirement date.
“During this period, equity exposure can be gradually reduced in a staggered manner, typically through SWPs, to build a more stable debt portfolio,” Magotra explains.
But what if you are retiring today and the market is yet to recover? Won’t your retirement corpus be hit badly? How will you ensure your monthly cashflow?
Nehal Mota, co-founder & CEO, Finnovate, suggests bucket strategy as an effective way to manage this risk, allocating 3–5 years of expenses in low-risk instruments like liquid funds or fixed deposits.
How market crash can impact your retirement corpusMota reveals a market crash near retirement can significantly damage the corpus due to sequence of returns risk when negative returns occur just before or after retirement, and withdrawals begin simultaneously.
“A 25–30% fall needs 35–45% gains to recover. Early withdrawals during a crash permanently erode wealth,” explains Mota.
Mota says the concern is not just the market fall, but the reduced base from which withdrawals continue, making recovery difficult even if markets bounce back later.Retirement corpus value when market falls 10%, 20%and 30% (As per Nehal Mota)
What should an investor do to avoid the impact of market crash on retirement corpus?
Magotra says the bucket strategy is a practical way to deal with this risk.
He explains that his strategy involves dividing allocations by time; for immediate expenses, he suggests keeping 2-3 years of expenses in safer, more liquid funds to avoid being affected by market fluctuations.
Shobhit Mathur, co-founder, Ionic Wealth, says the smarter approach is not chasing a ‘crash-proof’ strategy, but structuring your portfolio into time-based buckets, keeping 2–3 years of expenses in low-risk, liquid assets so that equities get time to recover, while staying diversified across equities, global exposure, gold, and income assets.
Retirement investment strategy explained (as per Vinayak Magotra)
Mota too recommends a bucket strategy, suggesting that you should have at least 2–3 years of expenses in safe assets. For 3–5 years of expenses, she advises using low-risk instruments like liquid funds or fixed deposits. For 5–7 years’ expenses, consider hybrid funds, and for the rest, invest in equities for long-term growth.
Asset allocation for retirement portfolio
If you want to retire today with Rs 1 crore retirement portfolio, what should be your asset allocation for a crash-proof portfolio?
Mota suggests allocating 30% (Rs 30 lakh) in liquid or ultra-short-term instruments for immediate needs, 40% (Rs 40 lakh) in medium-to-long duration debt or hybrid funds for stability over the medium term, and 30% (Rs 30 lakh) in equity funds such as index or large-cap funds for long-term growth.
“This structure ensures liquidity, stability, and growth, making the portfolio more resilient to market shocks,” predicts Mota.
Is a crash-proof portfolio possible?
Magotra feels there cannot be a completely crash-proof portfolio and to generate meaningful long-term returns, some allocation to equities is necessary.
He also says that the key lies in gradually tilting the portfolio towards debt at the right time, well before actual withdrawals begin from the retirement corpus. This shift helps reduce volatility and protects the portfolio as the goal approaches.
“As part of this transition, the debt allocation can include high-quality bonds, arbitrage funds, and now even SIFs, depending on suitability and investor requirements,” says Magotra.
Mathur suggests that a ‘crash-proof’ portfolio cannot be one-size-fits-all, as it must be designed around your risk profile, expected lifestyle expenses, and the inflation impacting those needs.
According to his strategy, for a Rs 1-crore corpus, one can allocate roughly 50–70% to domestic equities for long-term growth, 15–25% to global equities for geographical diversification, 10–15% to precious metals like gold as a hedge during market stress and 10–30% to income-generating assets such as debt or fixed income for stability and cash flows.
Rebalancing of retirement portfolio is necessary
Even if your equity allocation for long-term growth is high, you need to rebalance your portfolio as retirement nears and you can shift your equities towards less-risky asset. But when is it the right time to rebalance your portfolio and what should be the percentage of assets you should shift?
Mota believes it should be done annually or when allocations deviate by 5–10%.
“During bull markets, trimming equity exposure and reallocating to debt helps lock in gains, while during corrections, shifting some funds back to equity enables participation in recovery,” Mota explains her strategy.
Magotra is of view that rebalancing should ideally begin at least 24 months before the actual retirement date.
Magotra suggests that during this period, equity exposure can be gradually reduced in a staggered manner, typically through SWPs, to build a more stable debt portfolio.
“The approach would also depend on the expected withdrawals from the retirement corpus, while factoring in aspects like taxation, exit loads, and overall cash flow requirements,” says Magotra.