59 YO Retiree with 1.9 Crore: Can I SWP Rs 80,000 for 23 Years with 6% Annual Increase?

Ans: At 59 years of age, you are planning for retirement in the next two months. Your corpus in mutual funds and EPF totals Rs 1.9 crore. You want to plan a Systematic Withdrawal Plan (SWP) of Rs 80,000 per month with a 6% annual increase to combat inflation, for the next 23 years. Let’s break down your plan and assess if your current corpus is sufficient or if you need to target a larger amount.

Understanding Your Withdrawal Needs
You are aiming to withdraw Rs 80,000 per month, which equates to Rs 9.6 lakh annually in the first year. With a 6% annual increase, this amount will grow over the years, accounting for inflation. This is a smart approach as inflation will erode the value of your withdrawals over time, and an increase ensures your purchasing power remains intact.

The key question here is: Will your corpus of Rs 1.9 crore sustain this level of withdrawals for 23 years, while also growing enough to beat inflation?

Assumptions for Growth and Returns
SWP Growth Rate: You have asked for an annual increase of 6%, which means the withdrawal amount will grow to Rs 84,800 in year two, and so on.

Investment Growth Rate: A well-balanced portfolio of mutual funds, especially when aligned with equity and debt, can provide an average return of 8-10% annually. For this discussion, let’s assume a conservative 8% annual return.

Inflation: We are also factoring in inflation at around 6%, which means the value of your withdrawals will need to increase every year to maintain purchasing power.

Will Rs 1.9 Crore Corpus Last 23 Years?
With a monthly SWP of Rs 80,000 that increases by 6% every year, you will need to calculate the sustainability of your corpus based on these key factors:

Corpus Depletion Rate: Each year, you’ll withdraw more than the previous year due to the annual 6% increase. If the returns on your investments consistently outperform or match your withdrawal rate, the corpus can last longer.

Risk of Corpus Erosion: There is a risk that the corpus may not grow fast enough to compensate for the increasing withdrawals, especially in years when market returns are lower than expected. While 8% returns are achievable, they are not guaranteed every year. In such cases, there could be a gap between your withdrawals and the portfolio’s growth.

Based on these factors, a corpus of Rs 1.9 crore might fall short over 23 years if the market does not consistently deliver 8% returns. To give a clearer picture, your corpus would need to grow steadily while supporting increasing withdrawals. If the withdrawals outpace growth due to market downturns or other factors, your corpus could deplete faster than expected.

Target Corpus for a More Secure Plan
To ensure a more sustainable SWP, you should ideally target a higher corpus. A more appropriate figure could be around Rs 2.3 crore to Rs 2.5 crore to comfortably withdraw Rs 80,000 per month, with an annual 6% increase for 23 years.

This target would provide a buffer in case of market fluctuations, ensuring that even in years of lower returns, your corpus can sustain the increasing withdrawals.

What Can You Do?
Here are some actionable steps you can consider:

Increase Your Corpus Before Retirement
If you are currently two months away from retirement, you can still focus on building your corpus. Reviewing your investment strategy, ensuring you are investing in growth-oriented mutual funds, and considering top-up contributions can help.

Postpone Retirement Withdrawals
If possible, you could postpone the SWP withdrawals by a year or two. This would allow your corpus to grow further, giving you more financial strength when you start your SWP.

Adjust the Annual Increase
While a 6% annual increase helps beat inflation, reducing it slightly to 4-5% could give your corpus more breathing room. The key is to ensure your withdrawals don’t outpace the portfolio’s growth rate.

Diversify Your Portfolio
Ensure you have a balanced portfolio of equity and debt. Equity can help grow your corpus over time, while debt provides stability and reduces risk. A Certified Financial Planner can help you design the right asset allocation based on your needs.

Consider Tax-Efficient Withdrawals
With mutual funds, the taxation of long-term and short-term capital gains is something to consider. Equity mutual funds are more tax-efficient in the long run compared to debt funds. Ensuring you have the right balance can reduce tax liabilities on your withdrawals.

Role of Asset Allocation
Your corpus will likely need to stay invested to continue generating returns. Therefore, having a mix of equity and debt is crucial:

Equity for Growth: Equity mutual funds can offer higher long-term returns. However, they come with volatility, so it's important to allocate a portion of your funds here, especially for the long-term growth required for a 23-year plan.

Debt for Stability: Debt funds will provide stability to your portfolio and ensure that your corpus isn’t exposed to high risks. Balancing equity and debt ensures you can capture growth while mitigating risk.

Final Insights
Your current corpus of Rs 1.9 crore is substantial but may not be enough to sustain an increasing SWP of Rs 80,000 per month for 23 years. Targeting a corpus of Rs 2.3 crore to Rs 2.5 crore would be more secure, offering flexibility and stability.

Here’s what you should consider:

Increase your retirement corpus through strategic investments.

Ensure a balanced mix of equity and debt for sustainable growth.

Plan for tax efficiency to avoid over-burdening your withdrawals.

Consider reducing the annual increase slightly if needed to preserve your corpus.

By following these strategies, you can create a more sustainable financial plan for your retirement years.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment