From Rs 20,000 monthly SIP to Rs 2,51,000 monthly income; learn how combination of SIP and SWP may solve your retirement problem
A systematic investment plan (SIP) is a process of investing a fixed amount in a mutual fund and a systematic withdrawal plan (SWP) is a method of withdrawing a fixed amount at regular intervals from the investment made by individuals. Both can be important investment options for effective retirement planning. If we combine both, the outcome can be surprising. In a similar context, we will find out how one can build Rs 2,51,000 monthly income for 30 years with Rs 20,000 monthly SIP investment for 25 years. Let’s understand it through calculations.
Retirement is long-term planning, where investors can start investing at an early stage to draw the benefits after creating a corpus. The combination of a Systematic Investment Plan (SIP) and a Systematic Withdrawal Plan (SWP) is one such combination, where investors can create a corpus in the early stage of their career and withdraw it monthly post retirement. Thus, let’s understand how an individual can build a monthly income of Rs 2,51,000 for 30 years with a monthly SIP of Rs 20,000 for 25 years.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
Read more: PPF For Regular Income: How to get Rs 85,000 a month tax-free income from Public Provident Fund?
What is SWP?
A Systematic Withdrawal Plan (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.
SWP
SWPs offer flexibility in withdrawal amounts, individuals can set up SWPs in equity, hybrid, or debt mutual funds.
Systematic withdrawal plan
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.
What are benefits of SWP?
It offers a flexible withdrawal option
SWP allows regular inflow of funds
What is SIP?
A systematic investment plan (SIP) is a method of investing a fixed amount in a mutual fund SIP. Investors can start with a small amount of Rs 100.
How SIP and SWP work for retirement planning
First investors have 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 20,000 monthly SIP investment for 25 years at 12 per cent annualised return. If one starts investing at 25 years of age, they need to make the SIP investment till 50.
What will be your retirement corpus in 25 years?
The investment amount will be Rs 60,00,000, the estimated capital gains will be Rs 3,19,52,702, and the estimated retirement corpus will be Rs 3,79,52,702.
What next after building retirement corpus?
Investors have 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 2,51,000.
SWP calculations at 7 per cent annual return
We will take Rs 3,79,52,702 retirement corpus for investment for 30 years.
What will be the balance after 30 years?
The total withdrawn pension in 30 years will be Rs 9,03,60,000 at 7 per cent annual return, and the remaining corpus after withdrawing this amount will be Rs 44,049.