SWP Calculator

A Systematic Withdrawal Plan (SWP) allows you to withdraw a fixed amount regularly from your investment corpus while the remaining amount continues to earn returns. It's essentially the opposite of SIP-instead of investing regularly, you're withdrawing regularly.

Why it matters: SWP is crucial for retirement planning and anyone who needs regular income from their investments. It helps you create a predictable cash flow while still benefiting from potential investment growth on the remaining corpus.

The SWP Calculator helps you plan systematic withdrawals and understand how long your corpus will last.

Key Benefits:

• Sustainability Check: Determine if your withdrawal rate is sustainable over your desired time horizon
• Inflation Planning: See how inflation affects the real value of your withdrawals over time
• Safe Withdrawal Rate: Find the optimal withdrawal amount that won't deplete your corpus
• Comparison Analysis: Compare scenarios with and without inflation adjustment
• Retirement Planning: Plan your post-retirement income effectively

Each month, your corpus earns returns while you withdraw a fixed amount:

Monthly Calculation:

New Balance = (Previous Balance × (1 + Monthly Return)) - Withdrawal

Example:

Corpus: ₹1 Crore

Monthly Withdrawal: ₹50,000

Expected Return: 8% p.a. (0.67% monthly)

Month 1: ₹1,00,00,000 × 1.0067 - ₹50,000 = ₹1,00,66,667 - ₹50,000 = ₹1,00,16,667

Month 2: ₹1,00,16,667 × 1.0067 - ₹50,000 = ₹1,00,83,788 - ₹50,000 = ₹1,00,33,788

And so on...

With Inflation Adjustment:

If you increase withdrawals by inflation rate each year, your corpus depletes faster but purchasing power remains constant.

The 4% rule is a widely referenced guideline for retirement withdrawals:

The Rule: Withdraw 4% of your initial corpus annually, adjusted for inflation each year.

Origin: Based on the Trinity Study analyzing historical market data over 30-year periods.

Example:

Corpus: ₹1 Crore

4% Annual Withdrawal: ₹4 Lakhs (₹33,333/month)

Key Considerations:

• The 4% rule was based on US market data and may need adjustment for Indian markets
• It assumes a 60/40 stock/bond portfolio allocation
• Higher equity allocation may support slightly higher withdrawal rates
• Lower expected returns may require lower withdrawal rates
• Personal factors like risk tolerance and time horizon matter

Conservative Approach:

Many financial planners suggest 3-3.5% for more certainty, especially for early retirees.

Inflation erodes the purchasing power of fixed withdrawals over time:

Without Inflation Adjustment:

You withdraw the same ₹50,000 every month, but it buys less each year.

After 10 years at 6% inflation: ₹50,000 feels like ₹28,000 in today's value.

With Inflation Adjustment:

You increase withdrawals by inflation rate annually to maintain purchasing power.

Year 1: ₹50,000/month

Year 5: ₹63,000/month (at 6% inflation)

Year 10: ₹84,000/month

The Trade-off:

• Inflation-adjusted withdrawals deplete corpus faster
• Fixed withdrawals last longer but reduce lifestyle over time
• The choice depends on your priorities and other income sources

Recommendation:

Plan for some inflation adjustment (even partial) to maintain quality of life in retirement.

Optimize your systematic withdrawals for long-term success:

1. Start Conservative:

Begin with lower withdrawals (3-4%) and increase gradually based on portfolio performance.

2. Create a Buffer:

Keep 1-2 years of expenses in liquid funds to avoid selling investments during market downturns.

3. Diversify Investments:

Maintain a mix of equity and debt to balance growth and stability.

4. Review Annually:

Adjust withdrawal amounts based on portfolio performance and market conditions.

5. Consider Tax Efficiency:

Plan withdrawals to minimize tax impact-use tax-free income sources first.

6. Multiple Sources:

Don't rely solely on SWP. Combine with pension, rental income, or other sources.

7. Emergency Fund:

Maintain separate emergency savings outside your SWP corpus.

Understanding the difference helps you choose the right strategy:

SWP Advantages:

• Predictable, regular income
• Tax-efficient (only gains portion is taxed as capital gains)
• Control over withdrawal amount
• Can be started/stopped anytime
• Works with growth option funds

Dividend Plans:

• Unpredictable amounts and timing
• Dividend distribution tax applies
• No control over payout amounts
• Depends on fund's distributable surplus

Recommendation:

SWP from growth option funds is generally more tax-efficient and provides better control over cash flows than dividend plans.