SIP+SWP For Retirement Planning: Can Rs 25,000 monthly SIP investment lead you to Rs 13 lakh monthly income at retirement?
SIP+SWP For Monthly Income: An investor can start a monthly systematic investment plan (SIP) in a mutual fund to create a retirement corpus. At the retirement age, they can stop this investment and withdraw the monthly amount through a systematic withdrawal plan (SWP). With the help of the duo's combination, a Rs 25,000 monthly SIP investment can lead to up to a Rs 13 lakh monthly withdrawal.
SIP+SWP Combo For Monthly Income/Pension: Retirement planning has two stages- wealth accumulation and withdrawal. When a person has working years, they can earn to save and invest. They should target a retirement corpus goal. Once they achieve it, they can move that amount to a conservative mutual fund or a non-market-linked investment such as a fixed deposit (FD) to get a fixed income every month. The combination of a systematic investment plan (SIP) and the systematic withdrawal plan (SWP) can come handy, where one can generate a sizeable retirement corpus by investing an amount in a mutual fund scheme every month. Once they reach the retirement age, they can withdraw the same amount on a monthly basis. Know how both can work for retirement planning, and how a 25-year-old who starts a Rs 25,000 monthly SIP investment can lead to a monthly income of up to Rs 13 lakh at the retirement stage. Also, know what can be the monthly retirement income for 35 and 45-year olds who want to create their retirement corpus with a Rs 25,000 monthly SIP investment.
Photos: Unsplas/Pixabay
Calculation Chart Courtesy: Rakshith HD, Head Digital Sales, GoalTeller
How SIP can be used for retirement planning?
For most people who are in a job or a business, investing a large lump sum in a mutual fund is not easy. All they can save is some amount from their hard-earned monthly income. But irrespective of their income or savings, retirement planning for them is necessary. They can create their retirement corpus through investing in a market-linked or a non-market-linked investment scheme. SIP investment in a mutual fund scheme is one such method where they can invest a fixed amount every month to create a retirement corpus. They can also increase their SIP amount with a rise in their income.
How SIP investment works?
Through an SIP, an investor purchases net asset value (NAV) units of a mutual fund scheme. The fund house invests this amount in different assets. As the value of assets rises, the price of the NAV also increases. Because of it, the investor buys the same NAV at different rates every investment cycle. This process is known as rupee cost averaging, and it forms the base of compounding in an SIP investment. As the investment duration increases, compounding shows its impact, and the corpus rises faster. Anyone can use it to the maximum effect to create a large corpus with a small monthly investment. All they need is to invest for the long term.
How SWP works in retirement planning
Once you create a retirement corpus, you can withdraw this amount in one go or in phases. Sometimes, if you have created your retirement corpus through market-linked investment options, and the market is down at the time of your retirement, your retirement corpus can shrink. Amid such a situation, the SWP option can be used.
How SWP can be used
In SWP, you can shift your retirement corpus to a debt or a conservative hybrid fund to avoid market fluctuations to the maximum effect. You tell the mutual fund house to sell units every month and give you a fixed monthly amount. The benefit of it is that even when you are withdrawing your corpus, you will keep getting growth on it. If the rate of growth is more than the rate of withdrawal, the withdrawal can stretch for decades, and even then your corpus will not get drained.
SIP calculation for retirement planning
For our story, we will take the monthly SIP investment of Rs 25,000. We are taking the examples of 25-, 35-, and 45-year-old persons who want to invest till 60 years of age and withdraw the retirement corpus through SWP. The annualised growth on the SIP investments will be 12 per cent. The SIP investment horizon for the 25-year-old is 35 years; for the 35-year-old, it is 25 years; for a 45-year-old, it is 15 years. Each will get a 12 per cent annualised return on their investment.
What will be our SWP calculation?
At 60 years of age, each will invest the corpus in a mutual fund and start a SWP. Each will withdraw this amount monthly till 90 years of age. So, the withdrawal horizon for each is 30 years. Each will get 9 per cent annualised growth on their post-retirement corpus. We will show the monthly amount they can withdraw.
SIP retirement corpus for investor who begins investing at 45
With a Rs 25,000 monthly SIP investment, the investor can generate a retirement corpus of Rs 1,26,14,400.
Monthly income for investor who begins investing at 45
At 9 per cent annualised growth, the investor can get Rs 1,00,743 monthly income for 30 years.
SIP retirement corpus for investor who begins investing at 35
The investor will generate a retirement corpus of Rs 4,74,40,877 in 25 years.
Monthly income for investor who begins investing at 35
With that corpus, the person can get a monthly income of Rs 3,78,878 for 30 years.
SIP retirement corpus for investor who begins investing at 25
The investor can gather a retirement corpus of Rs 16,23,81,727.
Monthly income for investor who begins investing at 25
The investor can get a monthly income of Rs 12,96,834 for 30 years.
Important factor to keep in mind
While the numbers may look impressive, they do not account for inflation. As a point of reference, a current expense of Rs 50,000 per month could rise to Rs 4 lakh in just 35 years with an inflation rate of 6 per cent.
Calculation chart
| Age | SIP Amount | SIP Tenure (In Years) | Corpus at Retirement | SWP Tenure (In years) | SWP Amount |
| 25 | 25000 | 35 | ₹ 16,23,81,727 | 30 | ₹ 12,96,834 |
| 35 | 25000 | 25 | ₹ 4,74,40,877 | 30 | ₹ 3,78,878 |
| 45 | 25000 | 15 | ₹ 1,26,14,400 | 30 | ₹ 1,00,743 |