This article shows the maximum withdrawal in SWP form that you can take out from a retirement portfolio to make it last 30 years.

📚 Table of Contents

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• Defining SIP, SWP and STP
• Worked out example
• Minimum returns for a 30-year SWP

This article is a part of our detailed article series on Safe Withdrawal Rates. Ensure you have read the other parts here: Show/Hide

Defining SIP, SWP and STP

All of these are standing instructions that get executed as per a schedule you specify:

• Systematic Investment Plan (SIP): Money from a bank account is invested into a mutual fund, typically once a month
• Systematic Transfer Plan (STP): Units from a mutual fund are redeemed to invest in another mutual fund of the same AMC
• Systematic Withdrawal Plan (SWP): This is the reverse of the SIP. You sell the units from a mutual fund to send money to a bank account

In this article, we will see if you can have an SWP during retirement to fund in-retirement expenses. Here the success criterion is:

• being able to keep up with inflation. We will assume 7% inflation during retirement. At this rate, costs double in around ten years.
• not to run out of money before dying. We will assume 30 years in retirement

There should be multiple other income sources in a retirement portfolio like a pension plan, SCSS, Post Office MIS, RBI bonds or bank FD. We will see how much of the additional income can be funded via SWP and what the minimum return should be expected from the fund(s) from which the SWP is running.

Worked out example

We will assume that the first year’s withdrawal to be a value between 1% and 5%. The withdrawal amount will be increased by inflation every year. As a practical example, we will take

• starting portfolio of one crore
• ₹2.5 lakhs expense in year one; 2.5 * 1.07 = ₹2.675 lakhs expense in year two etc.
• since SWP is a standing instruction, we will edit the withdrawal amount in the mutual fund portal once a year to adjust for inflation

Astute readers will notice that this 2.5 lakhs out of one crore withdrawal increasing at inflation is equivalent to a 2.5% safe withdrawal rate (SWR) and the starting corpus is 1/2.5% = 40x expenses.

We see that a 5% return from the corpus, post-tax, is sufficient to fund the withdrawals for 30 years.

• at the end of the year

Minimum returns for a 30-year SWP

In the table below, we have summarized the returns you need for a 30-year SWP.

This table shows that if you are planning to withdraw in SWP form, then you cannot withdraw more than the rate in the SWR column.

Readers should note that these returns are post-tax and beyond 6% will not be guaranteed. We will provide a few options for each case for investing the retirement corpus. Your SWR will be slightly lower than half in each case.

• returns not more than 2%/year: dividends from a stock portfolio: How to plan for retirement/FIRE using dividend income?
• return between 2-4%/year: from low-risk debt mutual funds: How to choose debt instruments for retirement?
• return between 4-6%/year: from RBI gilt bonds where the coupons can provide this income over 30 years: How to use the RBI Retail Direct Scheme to get guaranteed income?. You should remember that you cannot reinvest any excess amount received from RBI bonds at the same coupon rate leading to some leakage. We will discuss how to fix this in a future article.
• returns beyond 6%: a combination of equity and debt mutual funds using the bucket method of retirement planning: How to plan for retirement using the bucket approach?

In a future article, we will consider those cases where the minimum return exceeds 6%. It is not possible to get a guaranteed return beyond these values.