SWP calculator: monthly withdrawals from a lump sum
How long a corpus lasts when you withdraw a fixed amount every month at an assumed return, or what is left after a set number of years, with the year-by-year balance.
Enter the corpus, the monthly amount you want to draw, and the return you assume.
How a systematic withdrawal works
A systematic withdrawal plan sells a fixed rupee amount of a fund every month and pays it to you; the rest of the corpus stays invested. Each month the calculator adds a month's growth to the balance and then takes the withdrawal out:
balance next month = balance × (1 + r ÷ 12) − withdrawal
where r is the yearly return as a fraction. If the monthly withdrawal is less than the monthly growth, the corpus keeps growing and lasts for ever; if it is more, the corpus falls, slowly at first and then fast, and the table shows the month it reaches zero.
Worked example
Rs 30,00,000 at an assumed 8% a year. The first month's growth is 30,00,000 × 0.08 ÷ 12 = Rs 20,000, so a withdrawal of Rs 20,000 a month is exactly covered by growth and the balance stays at 30 lakh for ever, in the arithmetic at least. Draw Rs 22,000 a month and the corpus drifts down slowly (Rs 26.3 lakh left after ten years) and runs out after about 30 years and 1 month. At Rs 24,000 a month it lasts about 22 years and 6 months; at Rs 25,000, 20 years and 3 months; at Rs 30,000, 13 years and 10 months. The decline is slow while the withdrawal is close to the growth and quick once it is well above it, which is why a small change in the monthly amount changes the answer by years.
What the arithmetic leaves out
- Sequence of returns. The formula applies the same 8% every month. A real fund returns minus 15% one year and plus 20% another, and if the bad years come first while you are withdrawing, the corpus can be exhausted years earlier than the table says. Keep two or three years of withdrawals in a deposit or a liquid fund so you never sell in a bad year.
- Tax. Each withdrawal is part capital and part gain, and the gain is taxed under the rules for that fund type in that year. The net amount in your hand is less than the withdrawal.
- Inflation. A fixed Rs 20,000 buys less every year. To keep buying power, the withdrawal has to rise about 6% a year, which shortens the life of the corpus considerably; run the calculator again with a higher withdrawal to see the effect of the later years.
- Exit loads and minimums. Funds set a minimum SWP amount and may charge an exit load on units sold within the first year. Both are in the scheme document.
SWP or a fixed deposit's monthly interest
A deposit's monthly payout is interest only; the principal is untouched and returned at maturity, and the rate is fixed and guaranteed. An SWP eats into principal unless the fund's return exceeds the withdrawal rate, but it can grow, and it is taxed differently. Neither is free money: the question is whether you want certainty or growth, and most retirees hold some of each.