New Delhi: Are you 35 years old and wondering how to live a comfortable life after retirement? National Pension System (NPS) can be useful for you. By investing in NPS, you can get a pension of Rs 2 lakh every month.
Retirement planning is not a one day job. The sooner you start, the more you will benefit. An option like NPS can help you create a big fund for retirement by saving a little every month. Here we will understand how much investment in NPS at the age of 35 can get you a pension of Rs 2 lakh every month after the age of 60.
NPS is a type of retirement fund. You invest in it every month. You can invest in equity, corporate debt, government bonds and other options as per your choice. After the age of 60, you can withdraw a lump sum amount and get pension every month from the remaining amount.
The thing to keep in mind is that the pension received from NPS depends on how much money you have deposited and what is the interest rate at the time of retirement.
Let’s understand with an example…
Suppose you are 35 years old and want to invest in NPS for the next 25 years. Your target is to get a pension of Rs 2 lakh per month after the age of 60. For this, you will have to deposit a total of Rs 2.77 crore in NPS by the age of 60. This calculation is based on the assumption that you will get an average annual return of 10% on your investment for 20 years.
As per the rules of NPS, you have to use 40% of your total accumulated amount to buy an annuity plan. This means that you have to buy an annuity plan with Rs 1.11 crore at the time of retirement. You will be left with a lump sum amount of Rs 1.66 crore.
Suppose you get 6% annual return from annuity plan. So an annuity plan of Rs 1.11 crore will give you a pension of around Rs 60,648 every month.
You can invest the remaining Rs 1.66 crore in a good hybrid mutual fund under Systematic Withdrawal Plan (SWP). If you get 10% annual return on this investment, then you can withdraw about Rs 1,39,993 every month. In this way, you will get a total income of Rs 2,00,581 every month from annuity and SWP.
Now the question is, how much will you have to invest every month in NPS to create a fund of Rs 2.77 crore in 25 years?
For this, you will have to deposit Rs 20,700 every month in NPS from the age of 35 years.
Here all this information is given through a table….
| Information | Description |
|---|---|
| age of onset | 35 years |
| Monthly NPS Contribution | ₹20,700 |
| Total accumulated capital at the age of 60 years | ₹2.77 crore |
| Lump sum amount on 60% of withdrawal | ₹1.66 crore |
| Monthly SWP on lump sum amount at 10% return | ₹1,39,933 |
| Value of annuity at 40% of investment | ₹1.11 crore |
| Monthly pension from annuity | ₹60,648 |
| Total Monthly Income | ₹2,00,581 |
This is about a monthly pension of Rs 2 lakh. If you are satisfied with an income of Rs 1 lakh per month after retirement, then you will have to create an NPS fund of Rs 1.38 crore. For this, you will have to invest Rs 10,350 every month in NPS for the next 25 years.
Remember that the returns from NPS and annuity depend on market fluctuations. This calculation is just an estimate. Your actual returns may differ from this.
There are two types of options available in NPS
There are two options you can choose from while investing in NPS: Active Choice and Auto Choice.
Under Active Choice, you can decide for yourself the proportion in which your money will be invested in equity, corporate debt, government bonds and other options. In this option, you can invest up to 75% of your total investment in equity. However, after the age of 50, this limit decreases by 2.5% every year.
Under Auto Choice, your money automatically gets invested in different options.
If you are investing for a long term, then the Active Choice option may be better. You can earn good returns by investing 50% or more of your investment in equity.
Overall, NPS is an excellent option for retirement planning. If you start investing in NPS from the age of 35, then you can easily create a good retirement fund for yourself and live your life comfortably without being dependent on anyone in old age.
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