The National Pension System (NPS) is a retirement savings scheme in India designed to enable individuals to plan and invest towards the pension amount they desire. With a straightforward approach, it lets you calculate your investment based on the pension you aim to receive.
Suppose you’re 25 years old and wish to secure a monthly pension of ₹1 lakh by the age of 60. Here’s a breakdown of what you need to do:
1. The NPS Investment Calculator: NPS provides a calculator tool on their official website to help users determine their required monthly investment. If you start investing at 25 and continue until you’re 60 (i.e., for 35 years), a monthly contribution of ₹5,500 would potentially secure you a pension of ₹1 lakh per month. Over 35 years, this would amount to a total investment of approximately ₹23.10 lakh.
2. Expected Returns: If your NPS investments yield an average annual return of 10%, the final corpus at retirement could be around ₹2.10 crore.
3. Pension vs. Lump Sum Options: The NPS offers flexibility in withdrawal. While you can opt for a monthly pension, you also have the choice of withdrawing a part of the corpus as a lump sum. However, at least 40% of the total corpus must be utilized to purchase an annuity, which provides the monthly pension. If you choose a pension based on less than 100% of the corpus, the remainder is returned as a lump sum.
Pension Breakdown:
- With 40%: Monthly pension would be ₹42,111, and you’d receive a lump sum of ₹1.26 crore.
- With 50%: Monthly pension of ₹52,639 with a lump sum of ₹1.05 crore.
- With 60%: Pension stands at ₹63,167 per month, with ₹84.22 lakh as lump sum.
- With 70%: ₹73,694 monthly pension and ₹61.16 lakh lump sum.
- With 80%: Monthly pension of ₹84,222 and a lump sum of ₹42.11 lakh.
- With 90%: Receive ₹94,750 as monthly pension and ₹21.05 lakh as lump sum.
The NPS provides flexibility in planning for retirement, offering choices on how to receive your savings. Whether you want a consistent monthly pension or a combination of pension and lump sum, the NPS helps you craft a retirement plan tailored to your needs.