Where Should Your Retirement Corpus Sit After You Retire?
By Chirag Jain, Director of Research and Client Relations, Northbridge Wealth (ARN-41379). Last updated: October 2026.
Hold it in layers, sorted by when you will need the money. A common structure uses three buckets: two to three years of expenses in liquid or short-duration funds, the next few years in conservative hybrid funds, and the remainder in equity funds. The first bucket pays your bills while markets are weak. The equity bucket gets time to recover. This post works through the structure with a ₹3 crore corpus, shows what it does in a bad first three years, and sets out the tax on each bucket.
Key takeaways
- Retirement changes the problem. You stop adding money and start selling units to fund living costs, so the order of market returns matters as much as the average.
- A bucket structure matches each pool of money to the year it will be spent.
- In our illustrative example, a bucketed ₹3 crore corpus was worth about ₹2.20 crore after three weak equity years, against about ₹1.86 crore for a single all-equity pot.
- The structure costs you in a rising market. Lower-risk buckets earn less. You are buying resilience, not extra return.
- Tax differs by bucket: slab rate for debt-oriented funds, and 12.5% on equity gains above ₹1.25 lakh a year after 12 months.
Why does where the corpus sits matter more after retirement?
Before retirement, a market fall is uncomfortable. After retirement, it can be expensive. Every rupee you withdraw in a down year comes from units that cost more to sell, because each unit buys fewer rupees of spending. Those units are gone when the market recovers.
This is sequence-of-returns risk. Two retirees can earn the same average return over 25 years and finish in very different places, because one met the weak years first. The first five years do most of the damage.
A single pot invested for growth ignores this. A bucket structure addresses it directly, by making sure the money you need soonest is not exposed to equity swings. For the arithmetic behind how big the pot needs to be, see. https://northbridgewealth.in/is-%e2%82%b95-crore-enough-to-retire-in-india-northbridge/
What is the bucket structure?
You divide the corpus by time horizon. Here is a ₹3 crore example, with first-year expenses of ₹12 lakh (₹1 lakh a month, today’s rupees). The sizes are rounded and illustrative.
| Bucket | Covers | Typical product category | Illustrative size |
| 1 | Roughly the next 3 years of spending | Liquid or short-duration debt funds | ₹40 lakh (13%) |
| 2 | Roughly years 4 to 7 | Conservative hybrid funds | ₹50 lakh (17%) |
| 3 | Everything beyond, plus a growth cushion | Equity-oriented funds | ₹2.10 crore (70%) |
Bucket 1 is spending money. Bucket 2 is the bridge, expected to move less than equity but earn more than a liquid fund. Bucket 3 is the part with a long runway, held for growth and for protection against inflation, which averages around 6% in our house assumptions.
Your own sizes will differ with expenses, other income, health cover and how you feel about volatility. The structure is the idea. The percentages are not a recommendation.
How does it behave when the first three years are bad?
Take the same ₹3 crore. Withdrawals start at ₹12 lakh and rise 6% a year, taken at the start of each year. Assume equity falls 15%, 10% and 5% in years one to three. Assume Bucket 1 earns 6% and Bucket 2 earns 8% a year. These are illustrative assumptions, not forecasts.
Total withdrawals over the three years: ₹12 lakh, ₹12.72 lakh and ₹13.48 lakh, or about ₹38.2 lakh.
| After 3 years | Single pot, 100% equity | Three buckets |
| Bucket 1 | n/a | ₹4.8 lakh |
| Bucket 2 | n/a | ₹63.0 lakh |
| Equity | ₹185.6 lakh | ₹152.6 lakh |
| Total | ₹185.6 lakh (about ₹1.86 crore) | ₹220.4 lakh (about ₹2.20 crore) |
The single pot sold equity units after every fall to pay for living. The bucketed corpus left its equity bucket untouched for three years and paid from Bucket 1.
Now the honest concession. If equity had risen in those years, the single pot would have won, because Buckets 1 and 2 earn less. And Bucket 1 is nearly empty at the end of year three, so you need a rule for what happens next. That is the next question.
When do you refill the buckets?
Set the rule before you need it. Two simple approaches work. One: review once a year and move money from whichever bucket is above its target weight into the one that is below. Two: refill Bucket 1 from Bucket 2 while equity is below its starting value, and from equity only once it has recovered.
Without a rule, people improvise in the middle of a fall. That is when the structure usually breaks.
How is each bucket taxed?
Tax is where the buckets differ most. Rules are as we understand them for FY 2026-27 and are summarised below.
| Bucket | Fund type | Tax on gains |
| 1 | Debt-oriented (liquid, short-duration) | Slab rate, any holding period, for units bought on or after 1 April 2023 |
| 2 | Conservative hybrid with more than 65% in debt | Treated as debt-oriented: slab rate |
| 2 | Hybrid with 35% to 65% equity | 12.5% after 24 months, no exemption [VERIFY] |
| 3 | Equity-oriented (65% or more domestic equity) | 12.5% on gains above ₹1.25 lakh per financial year, after 12 months. 20% if sold within 12 months |
Three mechanics apply across all buckets. A redemption, a switch and every SWP instalment is a capital gains event. Tax falls only on the gain portion, not on the whole amount. Units are sold on a first-in, first-out basis. Resident investors face no TDS on redemptions; for NRIs, TDS applies. See the https://www.incometaxindia.gov.in/w/capital-gain for the primary rule text, and confirm section references under the current Income-tax Act before quoting them.
A worked example. You redeem ₹10 lakh from an equity fund. The units cost ₹6 lakh and you held them for over 12 months. The gain is ₹4 lakh. After the ₹1.25 lakh exemption (assuming no other equity LTCG that year), ₹2.75 lakh is taxable at 12.5%. Tax: ₹34,375, before surcharge and cess. For the debt-bucket comparison, the same ₹4 lakh gain in a debt-oriented fund would be added to your income and taxed at your slab rate. At the 30% slab, that is ₹1.2 lakh before cess. For more on how instalments are taxed, see. https://northbridgewealth.in/swp-taxation-mutual-funds/
What do investors most often get wrong?
The classification trap. The name “conservative hybrid” suggests hybrid tax treatment, and clients often assume 12.5% after 24 months. In most cases the fund holds more than 65% in debt, which makes it taxed like a debt fund at slab rate. A fund called “balanced” or “aggressive” with 35% to 65% in equity is taxed differently. We correct this assumption more than almost any other. Check the scheme’s actual allocation, not its name.
The second mistake is sizing Bucket 1 on today’s expenses with no step-up. At 6% inflation, a ₹12 lakh budget is ₹13.48 lakh by year three. Our example steps up spending for exactly this reason.
What does a bucket structure not solve?
It does not create returns. It does not protect you if you withdraw too much: ₹12 lakh from ₹3 crore is 4% in year one, which leaves room, but a 7% or 8% start would behave very differently.
It does not remove medical inflation, which can run above general inflation, or the risk of living longer than expected. And Bucket 2 funds carry their own risks, including credit and interest-rate risk, which are not zero.
How we help with this
Northbridge Wealth is a registered mutual fund and SIF distributor, drawing on 26 years in Indian markets, and we help clients understand how a bucketed mutual fund portfolio works in retirement, assess whether it fits their broader portfolio, choose products aligned to their goals, and handle the execution and servicing that follows.
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Frequently asked questions
How many years of expenses should Bucket 1 hold? Two to three years is the usual range. Our example holds a little over three years of first-year spending. A larger Bucket 1 gives more cover but a smaller growth bucket.
Is a conservative hybrid fund taxed like equity? Usually not. If the fund holds more than 65% in debt, its gains are taxed at your slab rate. Funds with 35% to 65% in equity follow a different rule. Always check the allocation in the scheme document.
Can I use an SWP to pay myself from Bucket 1? Yes. A systematic withdrawal plan can send a fixed amount to your bank each month. Each instalment is a capital gains event, taxed only on the gain portion.
Does a bucket structure guarantee my money will last? No. The figures here are illustrative and use stated assumptions. Actual returns, inflation and spending will differ.
What if equity stays down for more than three years? Bucket 2 extends the runway by several more years in this example. Beyond that, spending flexibility and a review of the structure matter. Nothing removes the risk entirely.
Is TDS deducted when I redeem? Not for resident investors. TDS applies to NRIs. Capital gains tax is still due and is reported when you file your return.
Disclaimer: Northbridge Wealth (Suskan Finmaart Private Limited) is an AMFI-registered Mutual Fund Distributor (ARN-41379). This article is for information only and is not investment, tax, or legal advice. Tax rates and rules are as understood at the time of writing and may change; treatment depends on your individual circumstances. Please verify current rules and consult a tax professional before acting. Mutual fund and market investments are subject to market risks; read all scheme-related documents carefully. Please consider your own situation before investing.
All figures are illustrative calculations based on stated assumptions and are not projections, forecasts, or guarantees of returns.
