SIP+SWP For Retirement Planning: Rs 15,000 monthly SIP investment for 20 years, then Rs 1,15,500 monthly income for 20 years. Know how it can work out
Combining systematic investment plan (SIP) with systematic withdrawal plan (SWP) can help produce more benefits. By investing regularly through SIP and withdrawing through SWP, one can get regular income for years to fullfil their needs.
SIP (Systematic Investment Plan) and SWP (Systematic Withdrawal Plan) are two important investments for effective retirement planning. SIP allows individuals to invest small, regular amounts in mutual funds that help them build a retirement corpus over time through disciplined investing and the power of compounding. On the other hand, SWP lets individuals make withdrawals from investments during retirement. It provides a steady income while maintaining the remaining corpus for future needs.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
Understanding SWP
SWP is a method of withdrawing a fixed amount at regular intervals from the investment made by individuals. It is commonly used during retirement to generate a steady income while keeping the remaining corpus invested. While the investor withdraws their amount in phases, they also get growth on this investment. So, if the rate of growth is higher than the rate of withdrawal, they can withdraw the amount for decades.
Systematic Withdrawal Plan
SWPs offer flexibility in withdrawal amounts, individuals can set up SWP in equity, hybrid, or debt mutual funds, but it is good to start SWP in a fund with the least exposure to the market, e.g., a debt fund or a conservative hybrid fund.
More about SWP
SWP also provides rupee cost averaging, where the fund house sells fewer NAVs when the market is up and the unit price is high and sells more when the price is down.
Benefits of SWP
Flexible withdrawal option
Emergency fund alternative
Regular inflow of funds
What is SIP?
Mutual fund SIP has a fixed investment amount that remains the same throughout the period. Investors can invest daily, weekly, monthly, half-yearly, or yearly in it, with a minimum amount of Rs 100.
How SIP and SWP work for retirement planning
First one has to build a retirement corpus through SIP. Once the corpus is built, it can be withdrawn in the form of monthly income through SWP. There is an advantage in withdrawing through SWP, investor can witness growth in their corpus while withdrawing it. Individuals can also increase or decrease their withdrawal amount as per their requirements.
SIP calculations
We are taking Rs 15,000 monthly SIP investment for 20 years. It means if one starts investing at 30 years of age, they need to make the SIP investment till 50.
Rate of SIP return
We will calculate at 12 per cent annualised rate on this investment.
What will be your retirement corpus in 20 years?
Estimated capital gains on the investment will be Rs 1,13,87,219, and the estimated corpus will be Rs 1,49,87,219.
What is the next step after building a retirement corpus?
Investors need to invest the same amount in a mutual fund and start SWP from there.
What will be the monthly income from SWP?
The monthly income from systematic withdrawal plan (SWP) will be Rs 1,15,500.
SWP calculations at 7 per cent annual return
We will take Rs 1,49,87,219 retirement corpus for investment for 20 years.
What will be the balance after 20 years?
The total withdrawn pension in 20 years will be Rs 2,77,20,000 at 7 per cent annual return, and the remaining corpus after withdrawing this amount will be Rs 11,460.
SWP calculations at 6 per cent annual return
Assuming 6 per cent annual return. The total withdrawn pension in 20 years on Rs 1,06,500 monthly income will be Rs 2,55,60,000, and the remaining corpus after withdrawing this amount will be Rs 1,57,367.