SIP+SWP Retirement Planning: How Rs 11,000 monthly SIP investment may help you get Rs 1,86,000 monthly income for 40 years; see calculations
SIP+SWP Retirement Planning: The combination of Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) can be used for retirement planning, where one can accumulate a retirement corpus through SIP investment in mutual funds and withdraw it systematically over the years.
SIP+SWP Retirement Planning: When we talk about retirement planning, the first question that we should ask is what is the retirement age for us. For government employees, it is 60. So, some people can assume that the standard retirement age is 60. But in terms of financial planning, the retirement age is the stage when someone gets financial freedom, where one can run their expenses with their passive income. It can be 40 years for someone; for others, it can be 55 or 60. But if someone wants to achieve financial freedom early in their life, they need to start investing early. The earlier they start, the lesser their investment amount will be, and the larger their corpus can be.
The combination of the Systematic Investment Plan (SIP) and the Systematic Investment Plan (SWP) is one such scheme, where a person can build a retirement corpus gradually through SIP investment in mutual funds. Once they build a sizeable corpus through SIP, they can systematically withdraw it through SWP. In this write-up, know how one can build an estimated Rs 3.4 crore corpus through a Rs 11,000 monthly SIP in 30 years and then withdraw Rs 1,86,000 for 40 years.
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(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for retirement planning.)
How SIP works in retirement planning
For retirement planning, duration of investment matters a lot. So, even if one is picking a small SIP amount for monthly investment, they need to maintain it for a long duration such as 20 years or more. The good part with SIP investment is that investors don't need to time market. The price of the net asset value (NAV) rises and falls with the performance of the market.
How SIP works in retirement planning
It may go down for the time being, but in the long term, such as 10 years and above, the average return of any leading index, such as Nifty 50, can be 14 per cent. So, if one starts SIP investment today, their corpus will grow gradually over the years due to rupee cost averaging and compound returns. In 15-20 years, even after a small monthly investment, they can create a sizeable retirement corpus that can fulfil their retirement needs.
How SWP works in retirement planning
In SIP, one builds a corpus. In SWP, they withdraw it systematically. The corpus is invested in a conservative hybrid or a debt fund, which are least affected by market fluctuations. The investor withdraws a prefixed amount every month.
How SWP works in retirement planning
They can increase or decrease this withdrawal amount based on their expenses. They also get growth on this investment. So, if their rate of withdrawal is slower than the rate of growth, their corpus can last for decades.
SIP investment conditions
We will take the example of a Rs 11,000 monthly SIP investment in a mutual fund scheme(s). We will expect 12 per cent annualised growth on that. The duration of the investment will be 30 years.
Total SIP investment in 30 years
At Rs 11,000 a month, the total investment in 30 years will be Rs 39,60,000.
Retirement corpus from Rs 11,000 monthly SIP investment
The estimated capital gains will be Rs 29,93,0705, and the estimated corpus will be Rs 3,38,90,705.
Income tax
The estimated income tax on this corpus will be Rs 37,25,713.125, and the estimated post tax returns will be Rs 3,01,64,991.875.
SWP investment conditions
For SWP, our investment will be Rs 3,01,64,991.875. We will choose a debt fund where our annualised expected return will be 7 per cent. We are expecting monthly income for 40 years.
What will be monthly income?
The estimated monthly income will be Rs 1,86,000 for 40 years.
What will be balance after withdrawing monthly income?
Since the SWP fund is also growing at 7 per cent, the estimated withdrawn amount in 40 years will be 8,92,80,000, and the estimated balance will be Rs 9,70,366.