NPS: How a 5-year delay in your investment can cut your retirement fund by Rs 1.55 crore

NPS Calculator: The importance of saving early in your life is that your money has more time to grow. Since returns from your savings are reinvested, your money grows exponentially. There is no ideal age for starting to invest, but inculcating this habit in your early 20s can help you make a significant corpus by the time you retire. In this write-up, we will tell you how, if you advance your investment by five years, from 30 to 25 years of age, the difference in your returns will be significantly higher.

What if you start investing at 25?

If you start investing at 25 and consider 60 as the retirement age, you will have 35 years to save money. Let's assume that you are investing money in any of the national pension schemes.

At present, India's top five NPS schemes, such as LIC Pension Fund Scheme E- Tier II, and ICICI Prudential Shcemes E-Tier II, have given over 15 per cent returns in the last one year.

But we will take a modest approach here and expect an annual return of 10 per cent on a Rs 10,000 monthly investment. 

If you start investing at the age of 25 and retire at 60, your total monthly installments will be 420 in 35 years.

Since you are investing Rs 10,000 every month, your total investment in 35 years will be Rs 42 lakh.

At 10 per cent of the annual return, your total gains will be Rs 3.41 crore, while the total maturity value will be Rs 3.83 crore.

In NPS, you can withdraw up to 60 per cent of your total gains at the retirement age of 60.

You have to leave at least 40 per cent of the amount for reinvestment in annuities, which helps you get the monthly income.

In Scenario 1, if you withdraw 60 per cent of your invested amount and set annuity reinvestment at 40 per cent, your lump sum withdrawn amount will be Rs 2.3 crore and you will get Rs 1.53 crore for reinvesting in an annuity. Because of reinvestment, you will get a monthly pension of Rs 84,255.

In Scenario 2, if you withdraw 40 per cent of your total invested money and set annuity reinvestment at 60 per cent, your lump sum withdrawn amount will be Rs 1.53 crore and you will have Rs 1.53 crore worth annuities to reinvest for a monthly pension of Rs 1.26 lakh. 

In Scenario 3, if you withdraw 20 per cent of your total investment and reinvest 80 per cent in annuities, your lump sum withdrawn amount will be Rs 76.57 lakh. You can reinvest Rs 3.06 crore in annuities to get a monthly pension of Rs 1.69 lakh. 

What if you start investing at 30?

Here, our investment conditions will remain the same, barring the age, which will be increased from 25 to 30 years. It means you will invest Rs 10,000 per month for 30 years at a return of 10 per cent annually on your investment.

Your total installments will be 360, and the total invested money will be Rs 36 lakh. Your total maturity value after 30 years will be Rs 2.28 crore, while your total gains will be Rs 1.92 crore.

What is important here is that even though you will get decent money, a five-year delay in investment will cost you Rs 1.55 crore {Rs 3.83 crore (total maturity value after 35 years of investment)- Rs 2.28 crore (total maturity value after 30 years of investment)}. The reason behind such a vast gap is that you also get compound interest on your NPS earnings.  

How much pension will you get? 

In Scenario 1, if you withdraw 60 per cent of your investments, you will get a lump sum withdrawal of Rs 1.37 crore. A total of 40 per cent that you will leave for the reinvestment in annuities will be Rs 91.17 lakh. The reinvestment will help you get Rs 50,165 every month. 

In Scenario 2, if you withdraw 40 per cent of your total investment, you will receive Rs 91.17 lakh as a lump sum withdrawn and 60 per cent, or Rs 1.37 crore, for annuity reinvestment. You will be eligible for a monthly pension of Rs 75,247.     

In Scenario 3, if you withdraw just 20 per cent of your total investment and leave 80 per cent for annuity reinvestment, you will get Rs 45.59 lakh as the lump sum withdrawn amount and Rs 1.82 crore for the reinvestment in annuities. You will get a monthly income of Rs 1 lakh.