Worked Example
Annuity vs Equity-SWP: which builds more wealth over 25 years?
Scenario
Suresh, age 40, business analyst in Bengaluru, ₹22 lakh annual income, supporting wife + 2 kids + parents, ₹1 lakh monthly expenses
Inputs
- Years
- 25
- Amount INR
- 50,00,000
- Annuity tax %
- 30
- Annuity return %
- 6
- Equity-SWP tax %
- 12.5
- Equity-SWP return %
- 12
Calculation
- 1.
Annuity effective post-tax rate
6% × (1 − 30% tax) → 4.2%
- 2.
Equity-SWP effective post-tax rate
12% × (1 − 12.5% tax) → 10.5%
- 3.
Annuity corpus at year 25
₹50L × (1+0.042)^25 → ₹1.40 Cr
- 4.
Equity-SWP corpus at year 25
₹50L × (1+0.105)^25 → ₹6.07 Cr
- 5.
Wealth difference
|13985016 − 60677399| → ₹4.67 Cr
Conclusion
Equity-SWP wins by approximately ₹466.9 lakh over 25 years — driven by return rate.
Tradeoffs
Post-tax real returns matter more than nominal headline rates. Annuity loses more to taxation. Risk profiles differ too — guaranteed vs market-linked. Adjust for risk tolerance.