SIP+SWP Retirement Planning: How Rs 10,000 monthly SIP investment can enable you to withdraw Rs 1,69,000 monthly income for 40 years; see examples
SIP+SWP Calculator: A Systematic Investment Plan (SIP) in mutual funds in the long term can help one build a retirement corpus. The same corpus can be withdrawn in phases through a Systematic Withdrawal Plan (SWP) in a mutual fund.
SIP+SWP Calculator: The combination of a Systematic Investment Plan (SIP) and a Systematic Withdrawal Plan (SWP) can be used to build a retirement corpus and withdraw it in phases. The good part is that even when one withdraws their corpus through SWP, they also get returns on their lump sum investment. If the growth rate of the fund is higher than the rate of withdrawal, the investor can withdraw a pension for life. In this write-up, know how, through a Rs 10,000 monthly SIP investment for 30 years, one can generate a corpus large enough that can give them a Rs 1,69,000 monthly pension for the rest of 40 years. Know this combination can work.
Photos: Unspalsh/Pixabay
(Disclaimer: Our calculations are projections and not investment advice. Do your own due diligence or consult an expert for retirement plannning.)
How SIP works
SIP allows you to invest in a mutual fund scheme a fixed amount every investment cycle. SIP investors can increase or decrease their investment as per their capacity. They can also stop SIP and restart it. They can also opt for a step up SIP, where the SIP amount increases every year. SIP provides rupee cost averaging where the investor buys the NAV at different rates, so they don't need to time market.
How SIP works
SIP investment in the long run can help an investor get good returns. If they stretch their investments for 20 years or more, even a small monthly investment can help them build a sizeable retirement corpus.
What is SWP?
It is just opposite to SIP. Here, an investor invests a lump sum amount in a mutual fund scheme and withdraws a prefixed amount monthly. SWP can be set up in an equity, hybrid, or debt mutual fund. It can be set up in more than one mutual fund scheme.
What is SWP?
Here, the fund house sells NAVs every month and deposits the amount in the investor's account. If the rate of growth is higher than the rate of withdrawal, the fund can last forever, and one can easily withdraw a monthly income for life.
SIP investment
Here, we will take the example of Rs 10,000 monthly SIP. The duration of the investment will be 30 years, and the growth rate will be 12 per cent annualised.
What will be retirement corpus?
The invested money in 30 years will be Rs 36,00,000, the estimated long-term capital gains will be Rs 2,72,09,732, and the expected amount will be Rs 3,08,09,732.
What will be income tax?
Since we can't predict the future tax rate, we will calculate as per the current long-term capital gains tax rule.
What will be income tax?
After Rs 1,25,000 exemption on long term capital gains, the total estimated tax on the retirement corpus will be Rs 33,85,591.5.
What will be post-tax retirement corpus?
The estimated post-tax retirement corpus will be Rs 2,74,24,140.5. This will also be the amount to set up the SWP.
What will be SWP conditions?
We will go for a debt fund investment for SWP, where we will expect annualised growth rate of 7 per cent.
What will be monthly income on retirement corpus?
The monthly income on this corpus will be Rs 1,69,000 for 40 years.
What if the rate of growth is 8% instead of 7%?
The estimated monthly income in that case can be Rs 1,89,400, for 40 years.