SIP+SWP: Rs 10,000 monthly SIP for 20 years, Rs 25 lakh lump sum investment, then Rs 2.15 lakh monthly income for 25 years; see expert calculations

Neha Mota, founder, Finnovate Financial Services, says, "When you are young, you have higher risk appetite. That is when you take on the higher risk of equity funds to create wealth. Let us assume a person has current corpus of Rs 25 lakhs, which they want to invest for retirement. In addition, they also plan a monthly SIP of Rs 10,000 for the next 20 years; at which point they plan to retire. We assume post-tax returns of 12 per cent CAGR over these 20 accumulation years. Here is how your corpus will look after 20 years.

Chart Courtesy: Finnovate

As can be seen in the above table, the individual will have a corpus of around Rs 3.33 crore at the end of 20 years on retirement, from a combination of the SIP and the lumpsum investment future value. That becomes the base corpus for SWP.

As can be seen in the above table, the individual will have a corpus of around ₹3.33 Crore at the end of 20 years on retirement, from a combination of the SIP and the lumpsum investment future value. That becomes the base corpus for SWP.

This is the more important part of the retirement plan. The beauty of the SWP is that it draws down the returns and also the principal over 25 years. In the above case, they will have a corpus of Rs 3.33 crore at the end of 20 years, from which point, their post-retirement monthly pension payout will start.

Their monthly expenses are Rs 1.25 lakhs today. Assuming 4 per cent inflation, their monthly needs would be Rs 2.70 lakh when they retire at the end of 20 years. However, retirement results in lower monthly outflows due to lower transport cost, lower travel costs, lower EMI payments, etc. This is normally a reduction of around 20-22 per cent, so we assume a reasonable monthly expense of Rs 2.15 lakh; and for simplicity, we will keep this constant post retirement. When they withdraw from the corpus via SWP, the remaining corpus continues to earn returns. Obviously, this will be invested at a more conservative level of 6 per cent returns. Here is the final SWP paybackchart.

The above table shows how the amount is defrayed via SWP through which the entire corpus is drawn down by the end of the SWP period.

Nehal says, "The above table shows how the amount is defrayed via SWP through which the entire corpus is drawn down by the end of the SWP period.

"Once this payout is done over a period of 25 years, the corpus is almost entirely drawn down. What is important here is that SWP withdrawal each month is predictable and has a return and principal component. Here, only the return portion is taxed and not the principal portion. That makes it more tax efficient for the retiree!"