Retirement represents a significant phase in an individual’s life. It is a period when regular income becomes essential for managing daily expenses, yet the individual may lack a source of active earnings. In such circumstances, the returns generated from investments can prove invaluable. During their working years, individuals can make either monthly or lump sum contributions to a fund, allowing it to accumulate and grow for their retirement.
SWP investment
Understanding the long-term growth of investments, the critical role of compounding in establishing a substantial retirement fund, and the potential of a lump sum investment alongside a systematic withdrawal plan (SWP) of Rs 5,00,000 to generate a monthly income of Rs 87,000 over 30 years is crucial. This discussion will focus on how a lump sum investment of Rs 5,00,000 can appreciate over three decades, enabling monthly withdrawals of Rs 87,000 for 30 years.
Assuming an annual return of 12 percent on the investment, the projected capital gain after 30 years would amount to Rs 1,44,79,961, leading to an estimated retirement fund total of Rs 1,49,79,961. In the context of an SWP, the investor places a lump sum in a mutual fund and requests the fund manager to disburse a fixed monthly amount. To facilitate this, the fund manager liquidates units equivalent to the withdrawal amount from the investment, while simultaneously allowing the investment to grow. If the withdrawal rate remains lower than the growth rate, the retirement fund can sustain itself indefinitely, allowing for continuous withdrawals.
Considering the current long-term capital gains (LTCG) tax rate of 12.5 percent, the estimated tax liability on Rs 1,49,79,961 would be Rs 17,94,370.125, factoring in an LTCG exemption of Rs 1,25,000. After accounting for taxes, the anticipated retirement corpus would be Rs 1,31,85,590.875, which serves as the estimated fund for the SWP.
Monthly income of Rs 87,000
An investor aged 55 could allocate their funds into a conservative mutual fund yielding an annual growth rate of 7 percent. At this rate, a corpus of Rs 1,31,85,590.875 would facilitate a monthly income of Rs 87,000 for a duration of 30 years, allowing the investor to receive this amount until reaching the age of 85.