I want to generate regular income for my remaining life and at the same time, I want my corpus to grow. In such a scenario, what should be the withdrawal rate through SWP? Will one per cent per month be ideal?
- Praveen
No, one per cent per month will be dangerous, as you will run the risk of eating your capital much early. After four to five years, a monthly withdrawal of one per cent may be possible because your capital would also go up by that time.
Even if you have saved enough and want to withdraw 12 per cent per annum from that investments in a reasonably predictable fashion during initial years, then also you will run the risk of consuming your capital and outliving your savings. This could be very dangerous or not a very comfortable spot to be in.
So, I would say that a reasonable withdrawal rate should be six per cent per annum and maybe over a time frame of three to four years, you will be able to build the residual capital.
This investment strategy is nothing but letting some portion of your gains stay invested or not consuming all of your gains so that you can enhance your income in the future.
To summarise, not one per cent but half a per cent should be the withdrawal rate to begin with. And after three-four years, you may get an opportunity whereby your withdrawal rate will look like one per cent of your original investment.
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