How retirees can aim to create their own pension with Systematic Withdrawal Plan (SWP)?

In our last edition of Weekend Bytes, we spoke about using the Bucketing Strategy to manage cash flow at retirement. In this article, we focus on another retirement cash flow management strategy - Systematic Withdrawal Plan (SWP).

Post retirement, there is no regular source of income, hence it is essential to plan finances for this crucial phase of one’s life. Let us consider an illustration. A required retirement corpus of C has been built over the years by an individual. Suppose the expected rate of inflation is I%. The portfolio is estimated to generate a return of R%. Suppose the withdrawal rate is W%. All of these values are calculated as a percentage of C.

Ideal withdrawal rate would be = R% - I%

If the withdrawal rate is higher, the corpus can erode over time after adjusting for inflation.

Let us consider an example.

^CAGR return for NIFTY 50 Hybrid Composite Debt 50:50 Index from Mar 31, 2005 to Mar 31, 2025 - 11.51%. Source – Internal Calculations. Past performance may or may not be sustained in the future and is not a guarantee of any future returns.

#Average inflation for 20 year period (Mar 31, 2005 to Feb 28, 2025): 6.36%, Source: RBI Database on Indian Economy.

At higher withdrawal rates, keeping all other parameters constant, it may lead to erosion of the corpus over time. Thereby the corpus would not be able to serve the requirements of the individual.

A Systematic Withdrawal Plan is designed so individuals can receive regular amounts at predetermined intervals from the mutual fund schemes. You can consider investing in the HDFC Balanced Advantage Fund via the SWAP option. The withdrawal amount can be set by the individual as either a fixed amount or a percentage of the corpus based on the estimated withdrawal rate.

The funds obtained from an SWP (SWP Calculator) can serve as pension for individuals in their retirement. This could help put an individual’s concerns at rest knowing they will not have to compromise on their lifestyle choices.

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