Income generation from investments
Systematic investments are often commonly used as tools as to accumulate wealth for future long term goals like retirement. But, there is also a system to consume the gathered corpus which is particularly necessary for retirement planning as an average investor saves and invests for roughly 35 years and then he/she has to depend on the accumulated corpus for the rest of their life. With growing fast growing health and wellness lifestyle coupled with innovative medical practice average life expectancy of an individual is growing very quick so if one does not have a plan to gather the accumulated corpus then they might have to face cash crunch in later years of their life.
How to do it?
The answer to this question is just 3 letters; SWP which is abbreviated as Systematic Withdrawal Plan where in an investor creates a discipline to consume the invest corpus in such a way that the money lasts longer and there is also a scope wealth creation despite the withdrawal. The withdrawal can be very flexible as one can opt for monthly, quarterly, half yearly or annual frequency as per their need. SWP is the best tool for long term Wealth Distribution especially for people who receive a lump sum payment at retirement in form of their PF, gratuity corpus or leave encashment bonus. SWP can also be used for an investor who has created a retirement corpus by planning it as a financial goal. We provide such solutions to many retired government officials, public sector employees, bankers etc.
The main key to this solution is the rate of withdrawal to be planned which is a key challenge and this answer changes from person to person as every investor tends to have different needs. SWP can be done from a Hybrid Fund or Debt Fund as they have inherent mechanisms to protect your investments from market volatility.
For Example:
Mr. Sharma retires from a Public Sector bank and receives a retirement corpus of 50 lakhs and he also has a pension income being a public sector employee.
He invests the amount in a desired portfolio of Mutual Fund Schemes and decides to withdraw 0.50% of his invested corpus which is 25000 every month in order to meet his monthly expenses.
Where as
Mr. Anand retires from a business and he wishes to travel around the world post retirement. He has set aside a retirement corpus of 50 lakhs for the same.
He invests the amount in a desired portfolio of Mutual Fund Schemes and decides to withdraw 6% at one go every year whenever he plans to go abroad to make the payments.
But the best part is the remaining invested corpus has chances to earn a return higher than the withdrawal and thus create some wealth. The same appreciation can be used to increase the withdrawal amount later when a need arises due to increased inflationary expenses.
By practicing this there is a very good chance that the capital invested would at least sustain if not appreciate with ultra-long time horizons. We have a SWP calculator which one can use to study the nature of SWP investments done in past.