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.

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

 

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.

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

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.

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

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.

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

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!"