What is a Systematic Withdrawal Plan (SWP)?
An SWP is the retirement mirror image of a SIP: instead of investing a fixed amount every month, you withdraw a fixed amount from your mutual fund or brokerage corpus while the remaining balance keeps growing at market returns. The result is a monthly paycheck with real upside — and real downside — depending on how the underlying investments perform.
The Formula
To calculate the balance after one full year of monthly withdrawals, treat it as a future-value calculation with negative payments:
Balancenew = Balance × (1 + r)12 − PMT × [((1 + r)12 − 1) / r]
Where Balance is the starting corpus, r is the monthly return (annual rate ÷ 12), PMT is the monthly withdrawal, and 12 is the number of months in a year. Loop this year-by-year until the balance hits zero to find how long the corpus lasts.
Worked Example: $500K corpus, $3,000/month at 6%
A US retiree with a $500,000 corpus withdrawing $3,000 per month at a 6% annual return: monthly rate r = 0.005. Running the recursion, the balance grows for the first several years because $36,000/year is only 7.2% of $500K but the corpus earns 6% back. The corpus effectively lasts about 28 years before hitting zero. Cut the withdrawal to $2,500/month and the money lasts essentially forever at 6%. For an Indian investor, a ₹10,00,000 corpus with ₹10,000/month withdrawal at 8% lasts about 14 years.
When to Use an SWP
- Retirement drawdown: replace a salary with a predictable monthly deposit.
- "The 4% rule": stress-test whether withdrawing 4% of your corpus each year survives a 30-year retirement.
- Mutual fund SWP: in India, standard mutual funds let you set an automatic monthly redemption.
- Dividend replacement strategy: smoother, more predictable income than lumpy dividends.
- Sabbatical or education gap: fund a defined multi-year period without touching principal in a savings account.
Mistakes to Avoid
- Sequence-of-returns risk: a big market drop in the first few years is far more damaging than the same drop later, because your corpus is largest early. Keep 2–3 years of withdrawals in cash or bonds to bridge bear markets.
- Inflation eroding a fixed monthly amount: $3,000/month today has half the buying power in 25 years at 3% inflation. Step up your withdrawal by 3–4% annually or your standard of living silently falls.
- Forgetting tax on withdrawals: in the US, IRA/401(k) withdrawals are ordinary income; taxable-account withdrawals only trigger capital gains on the profit portion. In India, equity fund gains above ₹1 lakh/year are taxed at 10% LTCG.
Frequently Asked Questions
What is the "4% rule" for retirement?
The rule of thumb from William Bengen's 1994 study: if you withdraw 4% of your starting corpus in year one and adjust that dollar amount up for inflation each year, a diversified portfolio historically survives 30+ years. It is a starting point, not a guarantee — modern research suggests 3.3–3.5% is safer for long horizons.
SWP vs SIP — what is the difference?
A SIP (Systematic Investment Plan) puts money into a fund every month during your working years. An SWP takes money out of a fund every month during retirement or a spending phase. They use identical math — just with opposite signs on the payment.
Does the SWP amount grow with inflation?
Only if you set it that way. A default SWP pays a flat rupee or dollar amount forever. Real retirees usually step up the withdrawal 3–4% annually. This calculator supports a fixed amount by default — model inflation by running scenarios with a lower real return (nominal return minus inflation).
What happens when the corpus runs out?
The automatic withdrawal stops. That is why the calculator shows the exact year of depletion — so you can adjust the withdrawal, tenure, or expected return before it happens, not after.