Estimate the returns from an SWP, i.e. an invested lumpsum with regular monthly withdrawals

This calculator helps you calculate the value of an SWP investment which assumes a regular withdrawal of a certain amount of money every month. It also allows for yearly increments to allow for higher withdrawals due to rising living costs. Furthermore, using the logic for loan repayment via EMIs, as it estimates what amount of money would need to be withdrawn per month in order to exhaust the entire savings.

Note: In the real world, the yearly growth rate fluctuates and may even be negative for certain periods. Therefore, these results are mathematically a simplified, idealistic scenario.

Instructions

Information

How to use this calculator

Enter your investment amount. This amount is basically the amount that you have invested and are withdrawing a part each month for certain expenses. If using this for retirement planning, then this value could be the value of assets saved until that point. Remember that different assets grow at different rates so this calculation would need to be done separately for each one
Enter your required monthly withdrawal amount
Enter the annual growth rate, i.e. the rate at which the investment grows every year
Enter the number of years for which this systematic withdrawal will occur
Enter your applicable tax rate
Optional: State whether you want to increase the withdrawal per year, e.g. due to higher costs of living etc

What is an SWP?

The full form of SWP is "systematic withdrawal plan" and it refers to a type of investment. In an SWP, a lumpsum of money is invested and then an amount of money is paid out every month. Usually, the investment is in a mutual fund and the monthly pay-outs are automatic. In an SWP, the lumpsum grows at some growth rate. Depending on market conditions, this growth rate may be positive (you make money), 0 (you neither make nor lose money) or negative (you lose money). Practically speaking, the growth rate in the real world is not uniform and may fluctuate over time. When a monthly pay-out is done, the remaining money continues to grow at the growth rate.

It is impossible to accurately predict the value of a lumpsum invested as an SWP as this depends on the growth rate, when growth is positive, negative or 0, and for how long that growth rate applies. However, for investment planning purposes and to get an idea of the expected return on the SWP investment, the value can be estimated under some assumptions with the help of a calculator.

Note: Monthly withdrawals from the SWP may be subject to tax.

How can an SWP be useful to me?

An SWP can be used in many ways. Mainly the SWP is used when someone needs some money on a monthly basis, e.g. for household expenses, to reinvest in other instruments etc. The SWP pay-outs are usually automatic. The SWP is useful because the monthly pay-outs cover the monthly need of funds while the remaining money can continue to remain invested and hopefully grow

Note: As mentioned above, market fluctuations or developments could mean that the SWP loses money.

How is the future value of an SWP estimated?

To compute the future value of the SWP, we must do a series of calculations across all periods in a cascading fashion. This calculator first converts the annual growth rate into a corresponding monthly growth rate. This is done by taking the 12th root of (1 + annual growth rate). Then this monthly growth rate is applied to the initial investment amount to find out by what amount the initial investment grows. This profit is added to it and the monthly withdrawal is deducted from it to find the ending balance of the first period. The ending balance of one period becomes the opening balance of the next. In other words, the ending balance of a period assumes lumpsum investment growth and subtracts the withdrawals in order to calculate the ending balance of the next period. This exercise is repeated across all periods until we find out what the final ending balance, or the value of the SWP, at the end of the given duration will be. The formula used to calculate the future value of the SWP as well as the withdrawal amount in order for the SWP to have a final future value of ₹0 is given above.

What does an SWP of ₹100,00,000 grow to ?

Assuming an initial investment amount of ₹1,00,00,000, a growth rate of 10% and a duration of 20 years, the ending balance or final future value of the SWP can be calculated for 2 cases:

Case 1: Monthly withdrawals remain constant at ₹50,000

Ending balance: ₹3,13,62,038

Case 2: Monthly withdrawals in the first year are ₹50,000 and increase thereafter by 8% every year

Ending balance: ₹24,86,110

Case 3: Monthly withdrawals remain constant at ₹93,664 every year

If the monthly withdrawals are ₹93,664, then over 20 years, a total of ₹2,24,79,360 would be withdrawn. After 20 years, the corpus of the SWP will be completely exhausted and have an ending balance of 0.

Ending balance: ₹0

The reason for such different results is that in case 1, the withdrawals are always less than the growth of the opening balance of a period under the given assumptions. In case 2, the withdrawals are initially less that the growth of the initial investment amount, but over time, due to compounding of the withdrawals, there comes a points when the withdrawals are larger than the amount by which the opening balance of a period grows. So basically, this results in reducing the final value of the SWP.

Why is this SWP calculator special?

This SWP calculator is special because you can specify if you want to increase the monthly pay-outs on a yearly basis. It's an optional feature that lets you account for inflation in monthly expenses, which in turn requires a higher monthly pay-out and will affect the future value of the SWP.

Another notable feature of this calculator is that it tells you what you would need to withdraw in order to completely exhaust the SWP at the end of the duration. This calculation is done by using the formula for the equated monthly instalment (EMI) for a loan, see above.

It is very easy to use and is available online on a website that also hosts a whole bunch of other financial and investment related calculators which will make it easier for you to calculate whatever you need.

Why is a SWP calculator useful?

This SWP calculator is useful as it can help with retirement planning monthly budgeting, or investment planning.

It's also a good way for beginners and professionals alike to get a feel of the effects of compounding and to make better decisions.

As it allows you to calculate the value of the SWP considering a yearly increase in the withdrawal amounts, it helps give an understanding of whether monthly budgets are sustainable, which investment targets to strive for and how to plan for retirement better.

For certain combinations of (increased) withdrawal amounts, duration, and growth rate, the SWP could either never run out, or continue to grow, or lose some or all its value. This calculator helps understand what these combinations are and could help in better decision making.

How do I use this SWP calculator?

Instructions to use this SWP or systematic withdrawal plan calculator are provided above.

Why should I use an SWP calculator?

This calculator is easy to use and can help you save time. The results table allows you to see the development of the SWP for each month. This way you can verify the results yourself and/or get a better understanding of how an SWP works. It can help in retirement planning, wealth planning, monthly budgeting, investment planning and many other ways.