Ensure regular cash flow post-retirement with SWP
Financial discipline is crucial after the age of 60 to ensure your retirement corpus lasts. At the same time, smart investment choices can make your retirement years more financially secure. A steady cash flow becomes essential to meet monthly expenses during retirement.
Not everyone may have opted for a pension plan during their working years, and therefore might lack a regular source of income post-retirement. However, if you have built a sizeable corpus, you can still create a regular cash flow through effective investment planning. One smart strategy is a Systematic Withdrawal Plan (SWP).
Under an SWP, you invest a lump sum in a mutual fund scheme and withdraw a fixed amount every month. While your investment continues to grow, you receive a steady monthly income. This ensures regular earnings while preserving capital, so that by the end of the withdrawal period, you are still left with a significant sum.
For instance, if you invest ₹1 crore in a mutual fund and set up a monthly withdrawal of ₹25,000 over 20 years, you would withdraw a total of ₹60 lakh and could still be left with over ₹2 crore, assuming an average annual return of 6%. If you opt for a ₹50,000 monthly withdrawal under the same conditions, you would have withdrawn ₹1.2 crore and still retain around ₹94 lakh at the end of 20 years.
It's important to set your withdrawal amount wisely so that the corpus lasts throughout your planned retirement period. For example, with a ₹75,000 monthly withdrawal and a 6% annual return, the corpus would be exhausted by the 18th year.
The examples above assume a conservative 6% return, though equity mutual funds have historically delivered over 10% annually in the long run. However, after 60, most investors prefer to avoid heavy exposure to pure equity. An equity-oriented hybrid fund may be ideal in such cases. If you already have a significant portion of your portfolio in fixed deposits or debt funds, and can allocate ₹1 crore to equities, consider starting an SWP from a well-performing large- and mid-cap fund.
According to Vishal Dhawan, a certified financial planner and co-founder of Plan Ahead Wealth Advisors, investors looking to do a SWP for retirement cash flow can consider short-term debt funds, high credit quality corporate bond funds, equity savings funds, balanced advantage funds, arbitrage funds, income plus arbitrage funds.
'You can choose to set up the SWP start date appropriately keeping in mind the exit load free period and your tax bracket,' he says.
Another advantage of SWPs is their flexibility—you can adjust the withdrawal amount periodically based on the fund's performance. In this way, an SWP offers both regular income and capital appreciation, making it a smart post-retirement financial tool.
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