SIP+SWP Retirement Planning: Rs 16,000 SIP investment for 20 years then Rs 1.15 lakh monthly income for next 20 years; see expert calculations
SIP is a disciplined way of investment in which you invest a fixed amount regularly in mutual funds while (SWP) is a financial investment plan that allows investors to withdraw a set amount of money.
Retirement planning means preparing for your financial needs during retirement. If you timely start your retirement planning and work on your financial goals as early as possible, then you do not need to worry about a financially comfortable future after retirement. A retirement plan includes knowing your income sources, expenses, saving plans, assets, and others. This also requires your future cash flows means how much cash you need when you retire. Considering all these things in mind, you can start investing in SIP or SWP or in both for a better financial future.
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SIP and SWP investments for retirement
This article will talk about systematic investment plan (SIP) and systematic withdrawal plan (SWP) investments. For instance what if you start investing Rs 16,000 per month at 40 years of age and then invest that for a retirement pension in a SWP plan how much monthly income you can generate after 60?
SIP and SWP benefits
But before knowing the calculations from an expert, let's take a look at what is SIP and SWP and their benefits.
What is SIP?
SIP (Systematic investment plan) is a disciplined way of investment in which you invest a fixed amount regularly in mutual funds. The payment can be made daily, weekly, monthly, quarterly or yearly.
What is SWP?
A Systematic Withdrawal Plan (SWP) is a financial investment plan that allows investors to withdraw a set amount of money from their mutual fund assets on a monthly basis.
Invest Rs 16,000 monthly in SIP and continue it for 20 years
According to an expert from StockGro, if you invest Rs 16,000 monthly via SIP for 20 years at an assumed annual return of 12 per cent, you can build a corpus of Rs 1.57 crore. This corpus, if shifted to a conservative portfolio earning 8 per cent annually, can provide a monthly SWP of Rs 1.15 lakh for the next 20 years (without taxes or inflation adjustments).
What can be the monthly withdrawal if taxes and inflation are included?
However, combining taxes and inflation, the value might reduce 20-30 per cent i.e. the corpus would be under Rs 1.3 crore after inflation, and SWP in real terms would be Rs 80,000 to Rs 1 lakh initially, declining in value over time.
Market performance and tax policies
However, it is important to note that the actual results will vary based on market performance and tax policies.
What is the advantage of choosing the SWP way?
"SWP provides a regular, predictable income while keeping the remaining corpus invested, allowing it to grow and counter inflation partially. It is tax-efficient as withdrawals are taxed only on the gains, not the principal," the expert said.
'SWP is a good option for retirement'
The expert further said that SWP is a good option to plan a sustained lifestyle without depending on a salary income and is ideal for post-retirement life.
What if instead of choosing the SWP method, they withdraw the entire SIP corpus in one go?
As per the expert, withdrawing the entire corpus without a strong re-investment plan can result in high tax liability due to capital gains.
Lump sum amount
Additionally, the lump sum may erode faster due to mismanagement or inflation. SWP spreads tax impact and helps maintain financial discipline in the later years of life.
Investing in mutual funds is subject to market risks. Consult your advisor before making any investment.