How a Systematic Withdrawal Plan Works
A Systematic Withdrawal Plan (SWP) is the exact opposite of a Systematic Investment Plan (SIP). Instead of injecting capital monthly, you invest a large lumpsum amount into a mutual fund and withdraw a fixed amount every month. It is one of the most tax-efficient and reliable methods for generating a fixed pension-like income during retirement.
The Danger of Corpus Depletion
The biggest risk in an SWP is withdrawing more money than your portfolio generates in returns. If your withdrawal rate outpaces your growth rate, your principal capital begins to shrink, which subsequently reduces the amount of compound interest earned the following month.
Our interactive calculator solves this by using a Month-by-Month Iterative Engine. Instead of relying on a generic formula, the calculator simulates your exact balance after every 30 days. If your withdrawal amount is too high, the calculator will automatically trigger a red depletion warning, telling you exactly which month your funds will run out.
The 4% Rule
As a general rule of thumb for financial independence (FIRE), withdrawing 4% of your total corpus annually (divided into 12 monthly payments) is historically considered a "safe withdrawal rate" that prevents your portfolio from ever dropping to zero, assuming a balanced equity/debt portfolio.