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

Expert view

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.

Retirement corpus table

Particulars	Amount
Value of ₹25 lakh corpus after 20 years	₹2,41,15,732
Value of ₹10,000 monthly SIP after 20 years	₹91,98,574
Total corpus available after 20 years	₹3,33,14,306

Chart Courtesy: Finnovate

 

Retirement corpus

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.

Wealth payback post-retirement via SWP

Month	SIP	Return	Total Amount	Add SIP	Total Cash Flow
1	10,000	95	10,095	10,000	20,095
12	1,26,465	1,200	1,27,665	10,000	1,37,665
24	2,68,106	2,544	2,70,650	10,000	2,80,650
36	4,26,743	4,049	4,30,793	10,000	4,40,793
48	6,04,418	5,735	6,10,153	10,000	6,20,153
60	8,03,413	7,623	8,11,036	10,000	8,21,036
72	10,26,287	9,738	10,36,025	10,000	10,46,025
84	12,75,907	12,107	12,88,013	10,000	12,98,013
96	15,55,480	14,760	15,70,240	10,000	15,80,240
108	18,68,603	17,731	18,86,334	10,000	18,96,334
120	22,19,300	21,058	22,40,359	10,000	22,50,359
132	26,12,081	24,785	26,36,867	10,000	26,46,867
144	30,51,996	28,960	30,80,956	10,000	30,90,956
156	35,44,701	33,635	35,78,336	10,000	35,88,336
168	40,96,530	38,871	41,35,401	10,000	41,45,401
180	47,14,578	44,736	47,59,314	10,000	47,69,314
192	54,06,793	51,304	54,58,097	10,000	54,68,097
204	61,82,073	58,660	62,40,733	10,000	62,50,733
216	70,50,387	66,900	71,17,286	10,000	71,27,286
228	80,22,898	76,128	80,99,026	10,000	81,09,026
240	91,12,111	86,463	91,98,574	Nil	91,98,574

Corpus from SIP+lump sum investments

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.

Wealth payback post-retirement via 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.

Future expenses

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.

SWP withdrawal

Particulars	Amount
Total retirement corpus available after 20 years	₹3,33,14,306
Monthly Withdrawal required	₹2,15,000
Return on retirement corpus (conservative)	6%
Tenure of post-retirement payout	25 years
Total amount paid out	₹6,21,35,000
Total amount paid out of returns	₹2,88,20,694

SWP corpus

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.

SWP annual break-up

By end of the year	Amount Invested	Withdrawn Amount	Returns from your investment	Resultant Amount
2024	3,33,14,306	25,80,000	19,28,655	3,26,62,961
2025	3,33,14,306	51,60,000	38,18,229	3,19,72,535
2026	3,33,14,306	77,40,000	56,66,377	3,12,40,683
2027	3,33,14,306	1,03,20,000	74,70,615	3,04,64,921
2028	3,33,14,306	1,29,00,000	92,28,306	2,96,42,612
2029	3,33,14,306	1,54,80,000	1,09,36,659	2,87,70,965
2030	3,33,14,306	1,80,60,000	1,25,92,714	2,78,47,020
2031	3,33,14,306	2,06,40,000	1,41,93,331	2,68,67,637
2032	3,33,14,306	2,32,20,000	1,57,35,186	2,58,29,492
2033	3,33,14,306	2,58,00,000	1,72,14,752	2,47,29,058
2034	3,33,14,306	2,83,80,000	1,86,28,292	2,35,62,598
2035	3,33,14,306	3,09,60,000	1,99,71,844	2,23,26,150
2036	3,33,14,306	3,35,40,000	2,12,41,210	2,10,15,516
2037	3,33,14,306	3,61,20,000	2,24,31,937	1,96,26,243
2038	3,33,14,306	3,87,00,000	2,35,39,308	1,81,53,614
2039	3,33,14,306	4,12,80,000	2,45,58,321	1,65,92,627
2040	3,33,14,306	4,38,60,000	2,54,83,675	1,49,37,981
2041	3,33,14,306	4,64,40,000	2,63,09,750	1,31,84,056
2042	3,33,14,306	4,90,20,000	2,70,30,590	1,13,24,896
2043	3,33,14,306	5,16,00,000	2,76,39,880	93,54,186
2044	3,33,14,306	5,41,80,000	2,81,30,928	72,65,234
2045	3,33,14,306	5,67,60,000	2,84,96,638	50,50,944
2046	3,33,14,306	5,93,40,000	2,87,29,492	27,03,798
2047	3,33,14,306	6,19,20,000	2,88,21,516	2,15,822
2048	3,33,14,306	6,21,35,000	2,88,22,669	1,975

Conclusion

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!"