New Delhi: You have turned 35 and are wondering how you will 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 build a big fund for retirement by saving a little every month. Here we will understand that by investing how much in NPS at the age of 35, you can get a pension of Rs 2 lakh every month after the age of 60. NPS is a kind of retirement fund. You invest in this every month. You can invest in equity, corporate debt, government bonds and other options as per your choice. After the age of 60 years, you can withdraw a lump sum amount and take 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 us understand with 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 years. For this, you will have to deposit a total of Rs 2.77 crore in NPS by the age of 60 years. This calculation is based on the assumption that you will get an average annual return of 10% on your investment for 20 years.
According to NPS rules, you have to use 40% of your total accumulated money to buy an annuity plan. This means you will have to buy an annuity plan worth 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 an annuity plan. So from an annuity plan of Rs 1.11 crore, you will get a pension of approximately 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 approximately 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 corpus of Rs 2.77 crore in 25 years?
For this, you will have to deposit Rs 20,700 in NPS every month from the age of 35 years.
Here all this information is given through a table….
DetailsStarting age35 yearsMonthly NPS contribution₹20,700Total corpus at age 60₹2.77 croreLump sum at 60% withdrawal₹1.66 croreMonthly SWP at 10% return from lump sum₹1,39,93340% Annuity value at investment₹1.11 croreAnnuity Monthly pension received from ₹60,648Total monthly income₹2,00,581
This is the matter of monthly pension of Rs 2 lakh. If you are satisfied with an income of Rs 1 lakh every 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 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 types of options you can choose from when investing in NPS: Active Choice and Auto Choice.
Under Active Choice, you can decide for yourself in what proportion 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 reduces by 2.5% every year.
Under Auto Choice, your money gets automatically invested in different options.
If you are investing for the long term then the Active Choice option may be better. You can earn good returns by investing 50% or more of your investment in equities.
Overall, NPS is a great 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 in old age without being dependent on anyone.