Why Smart People are Choosing SWP Over Annuity

Job lost, but no expenses: As relaxing as the evening of retirement may be, money worries can make it equally scary. This is the question in everyone’s mind – “Now from where will the money come into the account on the 1st of every month?”

If you are also close to retirement or are planning it now, then there are two surest options in the market: 1. Annuity And 2. Systematic Withdrawal Plan (SWP)The aim of both is to fill your pocket, but the way they work is completely different, Let us understand what is best for you,

1. Annuity: A comfortable ‘fixed’ pension

Consider an annuity as a ‘firm promise with an insurance company’.

• How it works: You gave your deposit (lump sum) to the company and the company promised to give you a fixed amount every month for life.
• Biggest Advantage (Peace): Whether the stock market falls or skyrockets, your pension will not be affected. You will know that the expenses of ration, electricity bill and medicines will be covered with this money.
• What is the deficiency: The biggest problem is that once the money is paid, it Lock It happens. You can’t take it out in an emergency. Secondly, inflation increases every year, but your pension remains the same. The Rs 10,000 which is enough today will be like a straw in a camel’s mouth after 10 years.

2. SWP: The key is in your hands

This is a smart feature of mutual funds. In this, money does not get stuck at one place, but keeps working.

• How it works: You invest money in mutual funds and decide yourself “I want Rs 20 thousand every month”. The fund keeps giving you money by selling your units, while the remaining money keeps growing in the market.
• Advantage (Flexibility): Suppose expenses increase, then you can increase the withdrawal amount whenever you want or stop it if not needed. Since the money is in mutual funds, it has the power to beat inflation. Also, you have complete control over the money.
• What is fear: It has a direct connection with the market. If the market remains down for a long period, the value of your fund may reduce and your regular income may be affected.

Tax game: whose pocket is heavier?

When it comes to taxes, The SWP wins.

• Annuity: The money received from this is considered as your ‘salary’ and is taxed as per the tax slab.
• SWP: The rule of ‘capital gains’ applies to this. If your money is in equity funds, then within a year Profit up to Rs 1.25 lakh tax-free Is. Above that, only 12.5% ​​tax is levied. It is very beneficial for those who fall in lower tax slabs.

Conclusion: What should you choose? (Expert Advice)

Now the question arises – here is a well, there is a ditch, then where should we go?
Financial advisors say that makes sense “Hybrid Approach” That means adopting the middle path.

• Basic Needs: Put the money you need for food and to pay bills in ‘Annuity’, so that there is no risk in life.
• Lifestyle and inflation: Put the remaining money in ‘SWP’. This money will increase with time, which will enable you to fight inflation and also fulfill your hobby of traveling occasionally.

So, identify your ‘retirement goals’ and plan your portfolio wisely!