Systematic Withdrawal Plan (SWP) Calculator

Systematic Withdrawal Plan Formula

Balancen = (Balancen-1 × (1 + r)) - W

Where:

• Balance_n: The balance after the nth withdrawal.
• Balance_n-1: The balance before the nth withdrawal.
• r: The return rate per period (adjusted based on the withdrawal frequency).
• W: The fixed withdrawal amount.

The return rate per period (r) is derived from the expected annual return rate (R) and the number of periods per year (P), using the formula:

Return Rate Per Period:
r = (1 + R)(1/P) - 1

By applying this formula over multiple periods, you can estimate how long your investment will last under a given withdrawal plan or determine the remaining balance after a specific time.

Systematic Withdrawal Plan Meaning

A Systematic Withdrawal Plan (SWP) is a financial strategy that allows investors to withdraw a fixed or variable amount of money from their investment portfolio at regular intervals. This plan is typically used by retirees or those seeking a steady income stream while keeping their remaining funds invested.

The primary advantage of an SWP is that it offers a predictable cash flow, helping to meet recurring expenses without the need to liquidate a significant portion of the investment at once. The withdrawn amounts can be set according to the investor’s needs, such as monthly, quarterly, or annually, while the remaining investment continues to grow (or decrease) depending on the performance of the underlying assets.

Investors can choose to withdraw either a fixed sum of money or a percentage of the portfolio's value, and the remaining balance remains invested, potentially earning returns over time. This strategy helps in managing market risks and ensuring that the investor does not outlive their savings, making it a popular choice for retirement planning.