How to plan your retirement with an SWP

India economy


According to World Health Organization (WHO) statistics, India’s healthy life expectancy at birth has improved by 4.02 years, from 54.1 years in 2000 to 58.1 years in 2021. As the average lifespan increases, securing a financially healthy future for yourself in the golden years is of utmost importance, so that you can retire worry-free. The money you’ve saved should support a lifestyle similar to what you led during your working years, with some cushion for medical needs.

A well-structured retirement plan with the right investment strategies can ensure you achieve this and have a comfortable life after retirement. In the latest episode of Mint Money Shots, presented by Invesco Mutual Fund, Assistant Editor at Mint, Aprajita Sharma, spoke about how a systematic withdrawal plan or SWP can be a powerful tool for planning your retirement. An SWP allows you to manage your retirement corpus smartly by providing you with a steady income and keeping your tax burden to a minimum. Watch the full episode below,

As the name suggests, an SWP allows you to withdraw a fixed amount of money from your mutual fund investments at regular intervals. You can select this interval as monthly, quarterly or annually. By doing this, an SWP acts as a flexible way to turn your investments into a stable income stream during your golden years, a stage of life when you’ll likely need it most.

Provide a regular income stream and save on taxes

“An SWP offers retirees the double benefit of a regular income and tax efficiency. Whether you are withdrawing money for living expenses or other needs, SWP can provide stable cash flow and make your retirement savings last longer,” said Sharma.

This dual benefit makes it a boon for retirees who can adjust withdrawal amounts to meet their financial needs and also grow part of their corpus. According to financial experts, SWPs help retirees withdraw money in a structured way, providing a reliable income stream without depleting the portfolio too quickly. “One of the key benefits of SWP is tax efficiency. When you withdraw the amount, the withdrawn money is split into two parts: capital only and profit. The profit portion is taxed, while the original investment remains tax-free. This makes SWP much more fiscally efficient,” she explains.

Flexibility in the withdrawal amount

How much money do you need monthly to cover your daily expenses after retirement? As inflation rises, your expenses will also rise over time. SWPs offer the flexibility to adjust the withdrawal amount periodically to take this into account, ensuring you have enough money to keep you comfortable even as costs rise.

“To manage market risks and ensure your money lasts until retirement, financial advisors often recommend the ‘bucketing’ strategy. This strategy divides your retirement corpus into different types of funds based on their risk levels,” said Sharma.

To further clarify this, she shared a case study where a man allocated his Rs. Pension corpus of Rs 2 crore in three different buckets – 60 lakh in debt or hybrid funds, which is 30% of the corpus, again 60 lakh in equity-oriented funds, which is again 30% of the corpus, and the rest 80 lakh in all-equity funds, which is 40% of the pension corpus.

“Start by withdrawing from the less risky sector first and then move into equity-oriented funds as they have time to grow. This protects your immediate withdrawals from market volatility, while allowing your stock investments to grow over time. It is advisable to start planning your SWP strategy two to three years before retirement. Doing this will help you structure your investments to optimize taxes and ensure your retirement corpus is well prepared to generate inflation-adjusted income. Proper planning ensures that your withdrawals are sustainable throughout your retirement,” she added.

Get the most out of your SWP

A one-size-fits-all approach to withdrawal, like the popular 4 percent rule, is not a wise choice in the Indian scenario where investments are affected by varying market conditions and inflation rates.

“According to investment experts, it is essential to adjust your SWP based on your lifestyle, inflation and expected returns, rather than following general rules. A personalized SWP with professional guidance can ensure your body lasts long, while maintaining your quality of life,” she says.

It is equally important to select the right type of fund to maximize returns from your SWP investment. You can choose balanced or equity savings funds that offer a mix of growth and stability. To further reduce risk, you can also consider multi-asset funds that diversify across equities, debt and commodities.

Disclaimer: Mint Money Shots is an editorial series sponsored by Invesco Mutual Fund.

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