SIP+SWP Calculator: Rs 12,000 monthly SIP till 50 years of age and then Rs 135,000 monthly income till 80; how combination works
Retirement Planning: The combination of Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) can be used to generate a retirement corpus and then withdraw a monthly amount. One needs to be consistent in investing to create a large retirement corpus.
Retirement Planning for SIP+SWP: As a youngster, only a handful of youngsters think about retirement planning, as the focus is on the job or business and buying new possessions in life. But the delay can cost dearly. If they start investing early, they can have an edge over a late starter. If they begin early and invest consistently, they can also target early retirement. If they keep increasing their investment amount in sync with their rising income, they can generate a retirement corpus that can easily fulfil their future requirements. One of the effective ways to generate a retirement corpus can be to invest through Systematic Investment Plan (SIP). Once a sizeable corpus is generated, it can be withdrawn in phases through Systematic Withdrawal Planning (SWP). In this write-up, know how the combination of SWP and SIP can work to create a retirement corpus and then to withdraw that amount in phases.
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for retirement planning.)
SIP
It is a method to invest in mutual funds, where an investor can invest a predetermined amount in a scheme. Investors can choose the SIP amount, which can be as low as Rs 100, and the investment cycle, which can be daily, weekly, monthly, quarterly, or yearly. Monthly SIP is the most popular among all. The SIP investment can be increased or decreased as per the investment capacity.
SIP
One can stop it or restart it. They can also opt for a step up SIP, where they increase the amount in phases. When one invests through SIP, they purchase net asset units (NAVs) of a mutual fund scheme. Since the price of NAV keeps changing, investors buy different numbers of units every investment cycle. It gives the benefit of rupee cost averaging, which in the long run compounds SIP return faster.
SWP
While in SIP, one invests, in SWP, one withdraws corpus in phases. The investor invests a lump sum amount in a mutual fund scheme and sets an amount to withdraw every month. The fund house sells NAVs of the same amount every month and credits it to the investor's account. So, when the price of an NAV is high, the fund house sells fewer units, when the price is low, the fund house sells more.
SWP
Since the investor also gets return on the invested amount, if the rate of withdrawal is lower than the rate of the fund's growth, their invested amount won't finish. Senior citizens and people seeking monthly income from their mutual fund investments use SWP. Though almost all funds offer the SWP facility, it is recommended to start SWP in a debt or a hybrid fund where the impact of share market fluctuation is minimum.
SIP investment conditions
For our SIP investment, we will take Rs 12,000 as the monthly investment amount. The annualised return will be 12 per cent, and the investment period will be 25 years. So, if someone starts at 25 years of age, they have to invest till 50.
What will be retirement corpus?
The retirement corpus after the Rs 12,000 monthly SIP investment for 25 years, or Rs 36,00,000 investment overall, will be Rs 1,91,71,621, and the estimated corpus will be Rs 2,27,71,621.
What one needs to do
Now start a SWP investment from here. The investment amount will be Rs 2,27,71,621.
What will be rate of return?
The rate of return depends on the type of fund one is choosing. If they pick an equity fund, the return can be quite high, but since the corpus is for retirement, we need to pick an investment type where money is at minimum risk. For our calculation, we are picking a debt fund, where the rate of return will be 6 per cent.
What will be monthly income?
The estimated monthly income after investing Rs 2,27,71,621 and getting 6 per cent annualised return will be Rs 1,35,000.
For how many years can one get that monthly pension?
One can get that monthly pension for an estimated 30 years. So, if a 25-year-old starts an SIP and makes this investment till 50 and withdraws the amount at that stage to invest in SWP, they can get a monthly estimated amount of Rs 1,35,000 for 30 years.
What will be the total withdrawn amount in 30 years?
In 30 years, the estimated withdrawn amount will be Rs 4,86,00,000, and the estimated balance after that withdrawal will be Rs 8,56,221.