Retirement Planning: Everyone wants to have a comfortable life after retirement. Financial freedom is a great way to get that comfort. At the time of retirement, there may be no source of income to meet your expenses. In such a situation, passive income from investments can be very useful.
But this income is available only if you have already planned for retirement and invested in the early stages of life. But when is the right time to invest? One-time investment and Systematic Withdrawal Plan (SWP) can give you regular income after retirement. It can help in increasing the investment for years and withdrawing that money in the form of large monthly income for decades. Even a one-time investment of Rs 6,00,000 can give a monthly income of Rs 1,04,600 for 30 years. Let’s know how this happens?
Everyone has expenses after retirement. Most people do not have any regular source of income in old age. Some people get regular pension or income from other sources at that time. At such a time you need a retirement fund. You can plan your retirement fund based on your lifestyle and financial target after retirement. Life expectancy and inflation are two important things to keep in mind while calculating the fund.
If you expect to live 30 years after retirement and the estimated inflation is 6 percent, then your retirement fund should not fall short for a lifetime. You can invest to create a retirement fund. This investment can be done in one go. Whenever you have extra money, you can do it. For employed people, investing every month can also be a good option, as it fits according to their income.
Retirement is a long term planning, so it is important to pay attention to two things. Achieving the retirement target on time or before it and the returns received after tax deduction. It is not right to invest all your money only in stock market related schemes for your retirement fund. No one can postpone their retirement and the investment related to the stock market can go up or down anytime. Therefore, you should have both market linked and non-market linked investments.
Tax rules keep changing all the time, and this can also affect your retirement fund. Therefore, it is important to review your retirement planning every few years to correct your plan according to the changing rules. Investing in a stock market related program like mutual funds at one time can be more appropriate for those who want to invest for the long term. The reason for this is that the stock market can go down anytime, due to which your return can be negative.
But, in the long run, there is a higher chance of getting positive returns from the stock market. Also, if someone wants to grow their investment a lot, they have to give it enough time. Let’s know how SWP works in mutual funds. An investor invests a large amount at once in a mutual fund scheme and asks the fund house to give a fixed amount every month. How does the fund house give that money? They sell net asset value (NAV) units equal to the amount asked by the investor and deposit that amount in their account.
The special thing about SWP is that every time the fund house sells the NAV, the fund continues to grow. Also, because the money is not being withdrawn all at once, the performance of the fund will also be protected from market fluctuations. If the rate of growth of the fund is more than the rate of withdrawal, the money will not run out for a long time.
Our calculation will be done in several steps. In the first step, we will show how a one-time investment of Rs 6,00,000 will grow over 30 years. Then, we will see how they can generate a monthly income of Rs 1,04,500 over 30 years.
Yes, we will invest Rs 6,00,000 in a mutual fund plan. We expect it to give an annual return of 12 per cent for 30 years. The estimated fund from this investment in 30 years will be Rs 1,79,75,954. This will result in a profit of around Rs 1,73,75,954.
As per the current tax rules, there is a tax exemption of Rs 1,25,000 on Long Term Capital Gains (LTCG). After that, 12.5 per cent LTGC tax has to be paid. Taking these conditions into account, the total tax on this income will be Rs 21,56,369.125. After deducting tax, the balance amount is Rs 1,58,19,583.875.
For SWP investment, we are expecting an annual return of 7 per cent for 30 years. The investment amount will be Rs 1,58,19,583.875. After withdrawing Rs 1,04,500 for 30 consecutive years, the balance amount will be Rs 1,68,969. The total withdrawal amount during 30 years will be Rs 3,76,20,000.
(Disclaimer: This is just an estimate. This is not any kind of investment advice to you. Invest for financial planning based on your own due diligence and the advice of your financial advisor.)
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