A breakdown of how SWP (Systematic Withdrawal Plan) works and what each result means.
1. What is SWP?
A Systematic Withdrawal Plan (SWP) lets you pull a fixed amount from an invested corpus, while the rest keeps earning returns. It's the opposite of SIP — instead of investing in chunks, you're withdrawing in chunks. Popular for retirees who want a steady "salary" from their savings.
This calculator takes your monthly withdrawal amount, multiplies by 12, and models it as a single annual withdrawal at the start of each year. The remaining corpus then compounds annually at your expected return rate. This is a common simplification used for planning — it tends to be slightly conservative compared to true monthly withdrawals (which would let small portions of the corpus earn interest mid-year).
2. The Core Formula
The closed-form solution for the final corpus is:
A = P × (1+r)t − Wannual × (1+r) × [(1+r)t − 1] / r
Where P is your starting corpus, Wannual is the monthly withdrawal × 12, r is the annual return rate, and t is the number of years. The first term is what your corpus would grow to if you withdrew nothing; the second term subtracts the compounded effect of all annual withdrawals.
3. Sustainable Withdrawal
There's a magic number: the annual withdrawal where your corpus stays intact forever (a perpetuity):
Wsustainable, annual = P × r / (1 + r)
Withdraw less than this → corpus grows. Withdraw more → corpus depletes faster than it earns. We also show this as a monthly equivalent (annual ÷ 12) so you can compare it directly to your input.
4. Tax on Gains
This calculator applies a flat 12.5% LTCG rate to the total gains (returns earned, not principal). Real-world SWP tax is more nuanced — each withdrawal contains a mix of principal and gains, and the gain portion is taxed individually. The 12.5% used here is a reasonable simplification for equity-oriented holdings.
Tax = (Total Withdrawn + Final Corpus − Initial Corpus) × 12.5%
5. Inflation & Real Returns
The "Real Return Rate" applies the Fisher equation to show what your money earns after inflation:
Real Return = (1 + nominal) ÷ (1 + inflation) − 1
If your return is 12% and inflation is 6%, your real return is about 5.66% — that's the rate at which your purchasing power actually grows.
Caveats & Disclaimer
Returns are illustrative. Mutual fund investments are subject to market risk; past performance does not guarantee future results. The calculator assumes a constant return — real-world returns vary year to year, and SWP is particularly vulnerable to sequence-of-returns risk (poor returns in early years deplete corpus much faster than poor returns in late years). Stress-test your plan with returns 2–3% lower than your base case. The annualized withdrawal model is a planning simplification; actual monthly withdrawals would leave slightly more corpus intact mid-year. The 12.5% LTCG tax assumption doesn't capture STCG implications for withdrawals in the first year. Consult a financial planner for personalised advice.
