Systematic Lump-sum Withdrawal: Empowering you well after retirement

Posers such as these have again come to the forefront, thanks to attempts by the pension authorities to allow what is being billed as “systematic lump sum withdrawal” or SLW within the framework of the New Pension System (NPS). The proposed mechanism is aimed at empowering subscribers who are willing to stay invested well after retirement and leverage the corpus that they have accumulated.

Subscribers, it has been proposed, will be able to withdraw at standard frequencies (such as quarterly or semi-annually) under the newly-sensitised system. The NPS may thus be leveraged fully by individuals seeking such an option. The SLW mechanism will also fortify the current system and render it more user-friendly, it is felt. Systematic withdrawals will help the ordinary subscriber address a key – nearly universal – issue pertaining to the efficacy of his overall retirement plan, in which NPS is expected to play a critical role.

An organised withdrawal mechanism may be seen in the context of inflation, which has in recent months considerably impacted lifestyles in most economic strata. The consumer price index – which currently stands at over 7% – has lately made headlines for all the wrong reasons. With pricelines showing no signs of reversal, retirement plans must now factor in inflationary trends to an even greater extent, it is felt.

Plans can indeed go awry if wrong inflationary numbers are assumed. This happens frequently in the real world. The simple logic is that an accumulated corpus must grow at a steady pace, beating at least the impact of inflation (and probable taxation, the other tricky issue). Withdrawals, a source of sustenance for many retirees around the world, will simply deplete their reserves. The net reserves (that is, whatever is left in the corpus after the completion every specific instance of withdrawal) must be sustained and nurtured carefully.

It is for this very reason that withdrawals must be carefully calibrated. A seasoned individual may want regular lump sum drawings so as to meet financial commitments elsewhere. Such commitments may also cover his need for fresh investments in other assets. However, withdrawing large portions from one’s accumulated corpus (only to invest elsewhere) in a systematic manner must be conducted in a strategic manner.

(Nilanjan Dey is Director, Wishlist Capital and author of No Room For Less. The views expressed in the column are of the writer. He can be reached on nildey@yahoo.com)