Nearing retirement? Here's how to decide between a bank FD and an SWP for monthly cash flow
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Retirement planning
Are you confused between bank FDs or SWP for monthly income as you are nearing retirement? Here is what an expert says, as reported by ET Wealth.
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Key factors to consider
The decision between sticking to bank FDs/debt mutual funds or moving to a systematic withdrawal plan (SWP) in equity/hybrid mutual funds comes down to a classic trade-off between guaranteed income vs tax efficiency and growth, according to Rushabh Desai, Founder, Rupee With Rushabh Investment Services.
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Choose a combination
Desai further said that rather than choosing just one, a combination of both provides the ultimate balance of safety and inflation protection, and an effective retirement blueprint uses both tools complementarily by following the bucket strategy.
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Two investment buckets
The expert said that for this one will need to prepare two investment buckets, of which the first is the immediate income bucket, and the second is the growth income bucket.
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Approach for first investment bucket
In bucket 1, put a portion of your retirement lump sum into safe instruments like bank FDs and debt mutual funds and use this to secure your monthly expenses, Desai said.
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Approach for second investment bucket
The expert said that in bucket 2, one can invest the remaining larger portion into moderate risk hybrid mutual funds or equity savings mutual funds and let this grow untouched for the first 3 years after which you can start an SWP