Retirement Planning Alert: Fund Ready for Retirement? Avoid These Withdrawal Mistakes to Protect Your Savings

Building a retirement corpus is a major financial milestone. After years of disciplined investing through SIPs and long-term instruments, many investors finally reach their goals—buying a home, completing children’s education, and accumulating a sizeable retirement fund. However, financial experts warn that what you do after achieving your goal is just as important as how you invested. A careless withdrawal strategy can put your hard-earned retirement savings at risk.

As retirement approaches, the focus must shift from aggressive growth to capital protection, stable income, and tax efficiency. Making the right decisions at this stage can ensure financial security and peace of mind during your post-retirement years.

Biggest Mistake: Withdrawing the Entire Amount at Once

One of the most common mistakes investors make is withdrawing the entire investment as soon as their financial goal is achieved. Experts caution that this approach can be harmful both financially and tax-wise.

According to Saurabh Agrawal, Chief Business Officer (New Business) at Angel One, if an investor has been investing through SIPs for several years and the goal has been achieved—or is close to being achieved—the withdrawal plan must be designed very carefully. Pulling out the full amount in one go exposes the investor to unnecessary tax liability and poor reinvestment decisions.

The first step should be stopping the SIP, not redeeming the entire corpus immediately.

Build an Emergency Fund Before Anything Else

Before planning retirement withdrawals, investors should set aside 6 to 12 months’ worth of expenses as an emergency fund. This money should be kept in highly liquid and low-risk options such as liquid mutual funds or a savings account.

An emergency fund ensures that you don’t have to dip into long-term investments for sudden expenses like medical emergencies or unexpected family needs. This single step adds a strong layer of financial safety during retirement.

Use Systematic Withdrawal Plans (SWP)

Instead of making a lump-sum withdrawal, experts recommend using a Systematic Withdrawal Plan (SWP). SWP allows investors to withdraw a fixed amount at regular intervals—monthly, quarterly, or annually—based on their income needs.

This approach offers multiple advantages:

• Reduces the risk of poor market timing

• Ensures a steady flow of income

• Spreads capital gains tax over time

• Helps maintain discipline in withdrawals

If there is no immediate need for funds, investors can also gradually move money from high-risk equity funds to short-term debt funds or fixed deposits, which offer more stability.

Don’t Ignore Exit Load and Capital Gains Tax

When planning withdrawals, it is essential to consider exit loads and capital gains tax. Redeeming investments without understanding these costs can reduce net returns significantly.

Long-term capital gains, exit load periods, and tax implications vary across asset classes and fund types. A planned withdrawal strategy helps minimize unnecessary charges and improves overall tax efficiency.

Near Retirement, Safety Matters More Than Returns

As retirement nears, chasing high returns becomes less important than protecting capital. For example, if an investor builds a retirement corpus of ₹1–5 crore by the age of 55 and plans to retire at 60, the next five years should focus on stability rather than aggressive growth.

A smart approach is to keep expenses for the next five years in low-risk, high-liquidity instruments such as:

• Short-term debt funds

• Fixed deposits

• Liquid funds

This shields your money from market volatility and ensures predictable access to funds.

Ideal Asset Allocation Before Retirement

Experts suggest a balanced asset allocation strategy as retirement approaches:

• 30–40% in equity to protect against inflation

• 40–50% in debt instruments for stability

• Remaining amount in liquid assets for emergencies

As you get closer to retirement, equity exposure should gradually be reduced. This means shifting money from high-risk assets to safer options in a phased manner, rather than abruptly.

Final Takeaway

Reaching your retirement goal is a moment of pride, but mismanaging withdrawals can undo years of careful planning. Avoid lump-sum withdrawals, build an emergency fund, use SWPs, and rebalance your portfolio toward safety as retirement nears.

A well-planned withdrawal strategy ensures that your retirement corpus lasts longer, remains tax-efficient, and provides steady income—allowing you to enjoy retirement without financial stress.