NPS Calculator: How much you have to invest to get a pension of Rs 1 lakh per month on retirement
The National Pension Scheme (NPS) is a retirement-cum-savings plan which works on a defined contribution basis. One of the key features of the NPS is absence of any defined benefit that would be available at the time of maturity and the accumulated corpus depends on the contributions made.
The greater the value of the NPS contributions made, the greater the investments achieved, the longer the term over which the fund accumulates and the lower the charges deducted, the larger would be the eventual benefit of the accumulated pension wealth likely to be.
The planning for a post-retirement financial freedom has to start early and the NPS can play a big role in this. Post retirement, usually your regular income stops and most expenses either grow or continue as usual. To meet these financial needs, you need to have a stable monthly income source. In this story, we will learn about how one can secure a monthly pension of Rs 1 lakh after retirement through NPS investment.
How to get Rs 1 lakh per month pension from NPS?
Suppose you want to get a pension of Rs 1 lakh every month during your retirement years. Let us understand through a calculation how much you have to invest every month in NPS. Here we are assuming that your current age is 25 and you want to start your NPS journey and keep investing until you reach the superannuation age. So the investment period is 35 years and the return expected from NPS is 10%, which is a moderate expectation.
Monthly investment in NPS: Rs 13,100
Total investment in 35 years: Rs 55.02 lakh
Estimated return: 10%
Total amount on maturity: Rs 5.01 crore
Annuity: 40% (Rs 2 crore)
Estimated annuity rate: 6%
Pension at age 60: Rs 1 lakh per month
What is annuity in NPS?
When you invest in NPS, you are required to invest at least a minimum 40% in an annuity scheme.
Increasing the amount of annuity will also increase your pension. By investing in NPS, you also get tax deduction benefit of up to Rs 50,000 under section 80CCD (1B) of the Income Tax Act.
How are the funds contributed by the subscribers managed under NPS?
The NPS funds are invested by the PFRDA registered Pension Fund Managers as per the investment guidelines provided by PFRDA. The investment guidelines are framed in such a manner that there is minimal impact on the subscribers contributions even if there is a market downturn by a judicious mix of investment instruments like government securities, corporate bonds and equities.