Systematic withdrawal planning is an easy way to retire! Discover how systematic withdrawal plans help manage money and create consistent income during post-retirement.
How do you generally withdraw your funds from a mutual fund scheme? One smart way to do so is through a Systematic Withdrawal Plan (SWP). An SWP offers you a disciplined way of withdrawing your investment over a period. In fact, you can also use this option as a pension plan during your retirement. Read on to know how you can do that.
What are the key features of an SWP?
Here are the key features of SWPs:
- An SWP is a facility that helps you redeem units regularly.
- You can choose the frequency of withdrawals by opting for an SWP.
- An SWP helps you withdraw either a fixed amount or the capital appreciation.
- SWPs are ideal for investors who wish to earn a regular income from their investments.
How does an SWP help you in your retirement?
Here are the various ways in which systematic withdrawal plans can help you during your retirement
SWPs help you develop investment discipline:
Just like Systematic Investment Plans (SIPs), SWPs help you inculcate investment discipline. You can avoid withdrawing exceptionally large amounts from your mutual fund investment by opting for the SWP Retirees can easily build a regular source of income during their retirement by opting for SWPs.
SWPs are ideal during a bull run:
SWPs can be beneficial in a bull market. During a bull run, if the returns generated by your mutual fund scheme exceed the amount you’re withdrawing annually through the SWP, your capital remains relatively intact and continues to grow. This means your investment can potentially last longer than it would during a bearish market, where returns may be lower or negative. However, it’s important to note that market fluctuations can still impact the value of your remaining investment, even in a bull run.
SWPs offer the benefit of rupee-cost averaging:
Another key advantage offered by SWPs, which is also an advantage of SIPs, is rupee-cost averaging. On choosing the SWP mode to withdraw funds from your investment, you can redeem a certain number of units regularly from the scheme. Doing this averages your returns and protects you from incurring potential losses that can arise if you sell your units during a bear run. As most people age, they become risk-averse and SWPs help can help you hedge volatile market situations after your retirement.
SWPs offer flexibility and customisation:
One of the biggest advantages of SWPs is the ability to customise your withdrawals based on your financial needs. You can choose the frequency of withdrawals—monthly, quarterly, or annually—depending on your cash flow requirements. This flexibility makes it easy for you to align your withdrawals with expenses like household bills, medical costs, or lifestyle needs. Moreover, you can increase or decrease the withdrawal amount as your financial situation changes, ensuring that you maintain control over your investments and income throughout retirement.
In summary
A systematic withdrawal plan can help you generate a regular source of income for your retirement years. You can build a significant corpus during your income-earning years by investing in mutual funds and then opt for an SWP to earn a fixed income on a monthly basis. You can also use an online systematic withdrawal plan calculator to know exactly how much you must withdraw every month based on your risk-taking capacity and financial needs.
