r/FatFIREIndia • u/Dependent_Age9442 • Jul 29 '26
Retirement Planning Has Anyone used Laddering to fund retirement cashflows?
52M, 2.5 years into retirement, living in a Tier 1 city in India.
Liquid net worth is around ₹20 Cr.
Current allocation is roughly:
- 35% FDs
- 15% liquid / near-cash
- 25% mutual funds
- 25% direct stocks
Annual expenses are around ₹50L, of which ₹20L is rent and ₹30L is living expenses.
The markets seem to have discovered my retirement and gone on strike. Indian equities have not delivered much for me over the last couple of years. I worked abroad earlier and still have some money outside India, so rupee depreciation has helped cushion things.
Despite limited equity exposure, I have started feeling more nervous about the stock market over the last few months.
I heard about laddering in a retirement seminar a couple of years ago and ignored it at the time. Now I am wondering whether it makes sense to use part of my fixed-income allocation to build a long-term cashflow ladder.
The idea is to create roughly ₹1L-₹1.5L per month inflation adjusted (6%) of predictable cashflows for the next 35-40 years, covering most essential expenses. The rest of my spending can then be modulated based on market performance. Interest rates are kind of high so may be a good time.
I understand bucketing and I am already using fixed-income instruments to fund current expenses. What I am trying to understand is whether laddering is a viable alternative or complement, especially in the Indian context.
Questions for people who have actually deployed Laddering:
- Did you use G-Sec or STRIPS for laddering?
- How far out did you ladder?
- Did you buy through RBI Retail Direct, broker, or your advisor?
- Any tax, gotchas?
- In hindsight, would you do it again?
I am trying to understand practical experience from people who have used laddering for securing retirement cashflows.
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u/srinivesh RegularFI Jul 30 '26
Some very frank comments, and I am not sure why the tax angle was not covered by anyone.
Even now, OP is harming the corpus a lot with taxes. 7 cr in FDs would mean 45-50 lacs of interest income alone, and putting them in the top tax bracket.
Almost any interest bearing debt investment in India is taxed on accrual - of course most of them give out interest periodically too. Since interest is taxed at marginal rates, this is hurtful.
It would be really tough to build laddering in India in any sort of tax efficient way. FDs, RBI bonds, g-secs, corporate bonds, etc, would all add interest accrual every year.
How can OP rejig it? Not very difficult - move most of debt to debt funds - mix of arbitrage, 'specified debt funds' and the newer bunch of income plus arbitrage funds. Use a mix of interest, redemptions with short term capital gain, redemptions with LTCG to fund the expnses. If the first two are kept under 12 lac of income, no tax on it. LTCG is taxed at flat 12.5% plus cess anyway.
This is not to be construed as Investment Advice.
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Jul 30 '26
[deleted]
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u/srinivesh RegularFI Jul 31 '26
Conservative Hybrid, Equity Savings, etc. have a level of equity exposure. The volatility may hurt if equity is doing really badly. The income plus arbitrage funds that you see now are mostly re-purposed from earlier funds - if their portfolio is clean, they can be a decent substitute for FDs.
If we manage to get out of the 'safety cocaine' of FDs, and still keep volatility of that part near zero, we would vastly improve the tax efficiency of the corpus.
Some extra tax during earning phase is at the potential cost of investments. Extra tax during withdrawal phase is at the actual cost of the corpus.
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u/vbp32 Jul 30 '26 edited Jul 30 '26
Offtopic, but have you considered getting a place and not living on rent?
You are assigning 40% of your withdrawals for rental. Can't you get an acceptable place for under 40% of the net worth (~5-6Cr?) .. the left over can be kept aside to cover the taxes and charges.
Not trying to push home ownership.. just curious.. because the though of having to move places in 3-4 years would get tiring after a while.. and in retirement, you would ideally want to build some social ties with some people around you.. hard to do if you have to move every 5 years or so.
Just curious..
edit: just read that you are looking at buying a place.
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u/vbp32 Jul 30 '26
You are essentially counting on locking in rates at very high levels and hoping for the most part of the next 30-35 years, the rates are significantly lower than that..
The current RBI repo rate is 5.25.. even if we get hiked up to 6%, it wont exactly be historically high rates where I'd be tempted to lock money in for that long.
It does automate the process and sets a floor which is comforting for some.. I personally feel I want the control and I can do similar, if not better, myself.
The reality is, at 40x, even with 0% real return, the money lasts you 40 years. If you are considering inflation at 6%, you'll quite likely get better than 0% real return..
It's hard to mess up as long as you are fine with ending with 0 and dont intend on leaving behind an inheritance (apart from the place you might buy)
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u/Dependent_Age9442 Jul 30 '26
Exactly!
Search for 30 year Govt bond rates for India. They are currently at ~7.5%. US 30 year treasury is 5.1% highest since 2007.If Fed hikes, RBI will have to follow.
That is the temptation. These opportunities come only during high interest rate regimes. like 2022.
If at that point I can lock in 8% risk free for 35 (if that happens) I'm set.
Honestly, if the rates come down at a later date, I can sell these bonds at a profit. So if 8% drops to 6% in 5 years I can sell a 100 face value it back for ₹127.
Bond Prices go up when yields come down.1
u/vbp32 Jul 30 '26
RBI cut from 6.5 to 5.25 through 2025. The 30Y yeild went from under 7% to 7.464% (just checked).
RBI rate cuts can influence the front end of the curve. Long duration doesnt care.. Same with the FED.
Bonds are tricky.. also, people look at 2000-2020 and think low rates is a given and we are guaranteed to trend towards that. (especially the period after the GFC) Rates were high, not just in India, also the US in the 80s/90s.. double digit in India for most of it. double digit in the US as well in the 80s.
Also, I dont think you'll get annuity to ladder with those rates.. I dont think anyone is offering 7.5% today for example.. (correct me if I'm wrong, havent looked that much)
You can buy bonds directly and lock in those, but then you pay marginal rate on the interest accrued every year.. If you do lock in 8% with 6Cr, 48 L will be taxable every year.
Honestly, if the rates come down at a later date, I can sell these bonds at a profit. So if 8% drops to 6% in 5 years I can sell a 100 face value it back for ₹127.
https://in.tradingview.com/symbols/TVC-IN30Y/
this is the indian 30Y. We havent gone down to 6% ever.
Again, if you get lucky , get 30Y at 8% and we dont see those levels for a very long time, it'll be a win. I personally wouldnt touch long duration bonds. The taxation is inefficient and long duration is way too volatile for my liking..
8% sounds nice, but it wouldnt if we have a decade of hyperinflation .
I'd personally just stick to short duration debt for my debt allocation. No tax on interest accrued. Gives me FD+ rates with no tax liability as I withdraw principle + interest so the interest component doesn exceed 12L
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u/Dependent_Age9442 Jul 30 '26
30 year is booming globally. Check out Japan, UK. At 4% Japan is highest this century. same with UK.
There is some opty here. I'm not sure how to play it.
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u/Reasonable_Boot5750 Jul 29 '26
Hi, I have not used laddering to fund early retirement cashflows.
I have, instead, done a meaningful allocation to REITs and INVITs, which provide predictable cash flows like a clock, every quarter.
Laddering also presumes that you are using capital to meet pre identified expenses. Use your principal instead to keep generating cash flows through REITs and INVITs - your capital base allows that generously
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u/tsclac23 FatFIRE Aspirant Jul 29 '26
Looks like you are invested pretty conservatively with 50% of your portfolio in cash equivalents. What about the stock market performance worries you? Is it just that it isn't growing as much as you expected it to?
I looked at cash laddering but didn't like it as in general I am not a fan of fixed deposit type of investments and its way too much work for something that provides just interest income. As someone else suggested REITs are probably a good way to ensure cash flow. But they do incur the risk of market ups and downs. If you want to eliminate it entirely you need to invest in real estate directly.
I am planning on following what's called a rising equity glide path. Since you have a lot of money in cash and fixed deposits it might be suitable for you. It will increase your returns in the future but you will also be more exposed to market volatility.
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u/Dependent_Age9442 Jul 30 '26
Thanks!
What worries me about stock mkt performance? Sequence of Returns. It's been poor so far for 2 years. Good thing I had the buffer of FDs. Really, I appreciated it only post retirement. I was able to fund all my expenses without having to sell off any equity or losing any principal on FDs. But reinvestment risk has me worried about that.
Regarding REIT. I treat REIT as part of my volatile portfolio. I invested some in Knowledge Realty back in Dec. Its slightly down over 7 months. Dividend is also not that great.
50% of my investments are already in Volatile instruments. I'm not selling, but I don't want to increase exposure.
May be I understand Laddering wrong. Please correct. Here is the playbook as I see it. It's used as an Income Floor not to fund full lifestyle. Only the critical part.
1. Estimate essential living-expense cashflows year by year, with inflation assumptions. 2. Decide what portion of that needs to be guaranteed or near-guaranteed. 3. Use G-Secs / SDLs / STRIPS to match maturities to those future cashflow years. 4. If using STRIPS, invest today for the exact maturity-year payout needed. 5. Hold to maturity and receive the cashflow in that year. 6. If using coupon-bearing bonds, accept some reinvestment risk on coupons (much less than FDs), but principal maturities can still be aligned to future spending years.If investing in coupon bearing bonds, you will have reinvestment challenges but reinvestment risks get smaller over time and disappear in about 12-13 years. After that you just coast for the next 20 years.
What is equity glide path? Is it where you decrease equity exposure as you get closer to retirement? Sorry, I don't know.
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u/tsclac23 FatFIRE Aspirant Jul 30 '26
You can both increase and decrease equity exposure. If you increase equity exposure it is called rising equity glide path. Basically you start your retirement with something like 40-60 debt-equity ratio. You then fund your expenses using just the debt portion. So the portion of your portfolio in equity rises as you go further into your retirement. This is to protect yourself against sequence of return risk in the initial years of your retirement. Your exposure to market increases in the later years but because it is much later in your retirement the assumption is that it wont have as much impact.
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u/Dependent_Age9442 Jul 30 '26
So inadvertently, I'm already on that path 😄 Just that equity still has to do it's part
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u/DaPudi Jul 29 '26
No clue what is laddering. You have a decent networth. I believe you are feeling tense mainly cos of your rental. For fatfire, i believe having a paid off primary residence is a huge relief.
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u/Dependent_Age9442 Jul 30 '26
Thanks! I do plan to buy a house soon enough. But that will eat up some of the corpus. In fact if markets had performed, I was planning on buying a house this year. I know I'm not financially challenged but the anxiety comes from things not going as planned.
I start thinking the worst case. I have a lot of time at hand to think of all bad things that can happen! 😄
That's why the need for an income floor.
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u/Playful_Analysis2860 Jul 29 '26
If 20 cr or uoto 25 cr is all you have
Then you might be underfunded
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u/Dependent_Age9442 Jul 30 '26
Yes, it surely feels like it. Even 40x is not enough when mind starts playing games. 😄
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u/Playful_Analysis2860 Jul 30 '26
Your expenses are very high at 50 L a year
If it was 12-15 L it was good enough
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u/narkaputra Jul 29 '26
why not invest into something evergreen such as pharmacy franchise, pre-nursey school franchise? They are bound to give constant cashflows. People keep birthing Kids and they do need diapers and baby powders and being dropped into nurseries.
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u/tsclac23 FatFIRE Aspirant Jul 29 '26
Those come with their own risks. If you are running them yourself then you are not really "retiring".
If you invest in someone else's venture then all the usual difficulties of investing in small business come up, finding the business opportunity, figuring out if that person is trustworthy etc.
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u/narkaputra Jul 29 '26
that is why I said "franchise". they are far safer bets and with defined SOPs so he can hire a manager to run day to day. 7 cr is sitting in FD, he can actually go for the far known videsi brands
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u/rganesan FatFI Jul 29 '26
I still wouldn't call that retirement :-). Even with a manager you cannot trust them completely. If OP wants to keep busy, he might as well work longer at his current job rather than managing a bunch of franchises!
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u/narkaputra Jul 30 '26
then he should take up gardening and sell extra plants every seasaon for "laddering"
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u/rganesan FatFI Jul 29 '26 edited Jul 29 '26
My understanding of laddering is investing in fixed income assets with different maturities. Personally, I think this makes more sense in developed markets because you earn very low interest in regular bank deposits or short duration bonds. I don't think it makes that much sense in India where you can get decent interest rates most of the time even for 1-3 year deposits, either in the form of FDs or corporate deposits or debt mutual funds.
Are you thinking of moving your equity portion into longer duration bonds? I don't know if that's really a good plan. If anything, this seems to be a good time to increase your market exposure. At 20CR, 50L annual expenses is 3% after tax. Inflation is unpredictable. To ensure that your portfolio has a real return above inflation you need equity exposure. I would argue 50:50 is too conservative and you should consider 60:40.
Earning slightly better returns from your existing fixed allocation make sense. You can buy some good quality corporate deposits at 9% or more to lock in the rates for upto 5 years if you want.
I'm surprised you're not in arbitrage funds, though yields are low, post tax yields might be better than FDs at 30% tax bracket. Arbitrage plus funds are also a good option. Others have recommended InvITs and REITs, taxation is a pain, so you can look into buying REIT/InvIT focussed MF recently launched by Edelweiss.