How Does a Systematic Withdrawal Plan (SWP) Work?
A Systematic Withdrawal Plan (SWP) allows you to draw down your accumulated mutual fund corpus systematically. It functions as the reverse of a SIP. Instead of adding money every month, you withdraw a pre-determined amount every month. Meanwhile, the remaining balance in your account continues to generate returns based on market performance.
Why Retirees Love SWP
SWPs are primarily used to generate a steady, predictable "pension-like" income after retirement. By keeping the bulk of your money invested in mutual funds, your corpus has the potential to beat inflation over time, something traditional savings accounts and Fixed Deposits struggle to do.
The "Safe Withdrawal Rate"
A crucial part of using an SWP is ensuring you don't withdraw money faster than your investments can earn it. If your annual withdrawal percentage is significantly higher than your expected return rate, your principal corpus will deplete rapidly. Play with the inputs in the calculator above to find the perfect equilibrium where your withdrawals can last your entire lifetime!