The balance between growth and withdrawal
Each month the corpus earns a return and then pays out your withdrawal. If the return exceeds the withdrawal, the balance keeps rising even while paying you. If withdrawals exceed growth, the balance falls and the decline accelerates as the earning base shrinks.
A corpus of 1,000,000 earning 8% generates about 6,600 a month in growth. Withdrawing 5,000 leaves it growing; withdrawing 9,000 starts a countdown.
Sequence risk
This model assumes steady returns, but real markets do not oblige. Poor returns in the first few years of withdrawals do disproportionate damage, because you are selling units at depressed prices and permanently reducing the base that must recover.
The usual defences are keeping two to three years of withdrawals in cash or short-term debt, and being willing to reduce withdrawals temporarily during severe downturns.
Frequently asked questions
How much can I safely withdraw?
A common rule of thumb is 4% of the corpus annually, adjusted for inflation. In higher-inflation markets a lower real rate may be safer. Our safe withdrawal calculator explores this.
Is SWP better than taking dividends?
SWP gives you control over the exact amount and timing, whereas dividends are decided by the fund. Tax treatment differs by country and often favours SWP.
What if markets crash early in my withdrawals?
That is sequence risk, and it is the biggest threat to a withdrawal plan. Hold two to three years of withdrawals in cash so you never have to sell into a crash.
Should my withdrawal rise with inflation?
For a realistic retirement plan, yes. This calculator models a fixed withdrawal, so treat its longevity estimate as optimistic if you expect to increase withdrawals over time.
What return should I assume in withdrawal phase?
Usually lower than during accumulation, because portfolios typically shift toward safer assets. Something in the 6 to 8% range is a common planning figure.
Are SWP withdrawals taxed?
Typically only the gain portion of each withdrawal is taxable, and rules vary widely by country and holding period. Check local capital gains treatment.