A systematic withdrawal plan calculator consists of a formula box where one needs to input the following information:
- Total investment amount
- Monthly withdrawal
- Annual return rate (expected)
- Investment tenure
Alternatively, one might use a complex mathematical formula for SWP calculation. You can take a look at the formula below.
A = PMT ((1+r/n)^nt – 1) / (r/n))
Let us break the components of the given formula and understand them precisely.
- A: This is the future value of an investment. In simple terms, this is the value of a current asset based on an estimated growth rate.
- PMT: PMT is a payment per period in terms of finance.
- r: This signifies an annual rate of return.
- n: Compound numbers in a given period are denoted by "n."
- t: This is the number of periods in which an amount is invested.
To simplify the workings of an SWP calculator further, let us refer to an example.
For instance, an individual has invested Rs.60,000 for a tenure of 1 year and follows a systematic withdrawal of Rs.1000 per month. Further, the expected rate of returns stands at 10%. After monthly withdrawal, the final value at the end of 12 months is Rs.53,459. When you calculate this manually, it becomes difficult and leaves scope for inaccuracy. However, an SWP calculator brings out accurate values in seconds.
Now that you know about the working of this calculator, it is vital to learn about the several ways to use it.