A 65-year-old has Rs 50 lakh. An annuity at 7% pays Rs 29,167 a month for life with no capital returned. An SWP of the same amount lasts indefinitely if the portfolio earns 7.5% but runs out at about 90 if it earns 5%. How would you split the money?

Put about 40% into the annuity and run the SWP on the rest. The annuity sells certainty of income for life and gives up the capital; the SWP keeps the capital but at 5% the money is gone at about 90, while at 7.5% it never is. Rs 20 lakh in the annuity pays Rs 11,667 a month whatever happens, and the Rs 30 lakh SWP supplies the other Rs 17,500 with the capital still his. If returns disappoint, his income falls to the annuity floor rather than to zero.

Two different things, which is why the headline rates mislead. Buying a flat and renting one can cost the same each month; one leaves you owning something and exposed to the price, the other leaves you with nothing to sell and nothing to worry about. The annuity converts Rs 50 lakh into an income for life and takes the capital in exchange, so the 7% is not a return, it is the price of the insurer carrying the risk that he lives to 95. The SWP keeps the Rs 50 lakh in his name and lets him draw on it, so he keeps the capital, the flexibility and the whole of the return risk. The systematic withdrawal planA standing instruction to redeem a fixed sum from a mutual fund on a set date each month. The withdrawal is paid from the units, so the corpus shrinks whenever the fund earns less than the amount drawn. is only as reliable as the fund's return.

Everything. The arithmetic is a race between what the corpus earns and what he takes out. At 7.5% it earns about Rs 31,250 a month against a Rs 29,167 withdrawal, so the corpus grows and the plan lasts indefinitely. At 5% it earns Rs 20,833, the shortfall comes out of capital, and the money is gone after about 25 years, at age 90. At 6% it lasts into his nineties with about Rs 8 lakh left at 95. The sequence matters as much as the average: a bad first five years with full withdrawals does more damage than the same bad years later, because the withdrawals are taken from a smaller base.

Three things. The capital: if he dies at 72, the insurer keeps most of the Rs 50 lakh; the return-of-purchase-price variant fixes that but pays Rs 25,000 instead of Rs 29,167. Liquidity: an annuity cannot be redeemed for a hospital bill or a daughter's wedding. And inflation: the payment is fixed in rupees, so at 5% inflation its buying power halves in about 14 years, by his late seventies. The SWP can be stepped up each year, at the cost of running out sooner. Tax usually differs too: annuity income is typically taxed as income, while SWP withdrawals are taxed only on the gain inside each redemption; confirm the current treatment, because it can change the comparison by a few thousand rupees a month.

Cover the floor with the annuity and keep the rest flexible. Rs 20 lakh in the annuity pays Rs 11,667 a month for life; Rs 30 lakh in the SWP supplies the remaining Rs 17,500, keeps Rs 30 lakh liquid and leaves something for his family if returns are reasonable. If the fund earns only 5%, the SWP still runs out around 90, but his income then falls to Rs 11,667 plus his pension rather than to the pension alone, and he has had 25 years to notice and cut the withdrawal. The split can tilt: a man with no family to leave money to and a long-lived family history takes more annuity; one with health problems or dependants takes less. The limits: annuity rates move with interest rates and are set for life on the day he buys, so buying in two tranches a year apart spreads that risk; the SWP returns are assumptions; and the right withdrawal rate from Rs 30 lakh may be lower than Rs 17,500 if he wants it to last past 90 on a 5% return.