So if my understanding is correct, SWP is an utility where units from the MF are sold off at predetermined intervals so that we can get a regular fixed cash flow. But with this logic it also means that at some point of time, the units that I bought initially will one day get exhausted and the value of my investment will be NIL.
However, I was using AdvisorKhoj website SWP calculator and it showed me that with some popular balanced funds, even with 10% annual increase in my SWP amount (starting with 8% of the initial lumpsum amount), my investment shows no signs of depleting; rather it has increased 6x times in last 15 years. So my question is: Is this a realistic/practical investment strategy for a retired person i.e. investing lumpsum in balanced fund, opting for SWP with annual 10% increase and staying invested for long term? (Sorry if my question seems long or confusing)
2 Answers
Hi,
It all depends on the appreciation/growth rate and withdrawal rate/amount.
As Equity balanced funds are risk oriented funds, there can be periods of negative returns as well.
Related article :
https://www.relakhs.com/lump-sum-investment-options-retirees/
If one is totally dependent on regular income from SWP then setting up SWP for Equity funds can be a risky bet. Debt oriented funds can be relatively safer bet.
Thank you. I read the article that you shared. I am sharing a paragraph from it. Could you kindly explain it with a suitable example?
“You need to give importance to both nominal rate of return and real-rate of return. The nominal rate of return gives you an idea of how your money/investment is growing, while the Real Rate of Return tells you how much your purchasing power is growing. The real-rate of returns is a very important factor to watch out for during the ‘Withdrawal’ stage of your retirement.”
Hi,
Suggest you to go through below articles, can be useful, kindly do revert to me if you have any query ;
https://www.relakhs.com/real-rate-of-return-inflation-adjusted/
https://www.relakhs.com/retirement-planning-calculator-3-easy-steps/
https://www.relakhs.com/formulas-calculate-returns-investments/
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