As per WHO stats, India’s healthy life expectancy has risen by 4.02 years, from 54.1 years in 2000 to 58.1 years in 2021. More living years require planning to be financially independent for a peaceful retirement, especially if high medical expenses are anticipated. A systematic withdrawal plan helps retirees to effectively manage their retirement corpus. In a recent episode of Mint Money Shots, Aprajita Sharma, Assistant Editor, Mint, explained how SWPs grant people the ability to withdraw fixed amounts from mutual fund investments on a periodic basis: monthly, quarterly, or yearly—in order to get a steady income tax-efficient benefit.
How do SWPs work?
SWPs divide withdrawals into two parts: the original investment, which remains tax-free, and the gains portion, which is taxed. This structure ensures retirees get a regular income stream while reducing their tax burden. Flexibility is another benefit, as withdrawal amounts can be adjusted to account for rising expenses due to inflation.
Financial advisors recommend using the “bucketing strategy” to manage risks and sustain withdrawals. This involves splitting retirement savings into three buckets based on risk levels:
- Debt or hybrid funds for immediate needs.
- Equity-oriented funds for medium-term growth.
- Fully equity funds for long-term compounding.
- Plan well to live your sunset years well
By withdrawing from the safest bucket first, retirees can protect their portfolio from market volatility while allowing riskier investments to grow. Sharma advises beginning SWP planning 2-3 years before retirement to optimize taxes and ensure inflation-adjusted income.
Customizing SWPs based on lifestyle, inflation, and expected returns is key to sustaining the corpus. Investment experts suggest balanced or equity savings funds for stability and growth, or multi-asset funds for diversified risk. With professional guidance, retirees can maximize their SWPs, ensuring a worry-free and financially secure retirement, thereby reducing dependency on progeny as well as ensuring that all needs are met to utmost satisfaction.
