NPS Retirement Planning: How to build Rs 5 crore corpus and get over Rs 1.46 lakh pension at retirement; get expert calculations

NPS Retirement Corpus and Monthly Pension: Early-movers take advantage in many spheres of life. The adage holds true for retirement planning as well. The sooner you start, the larger your retirement corpus can be. So, the one who starts retirement planning at 25 years of age will hold a significant edge over someone who starts the same at 40, provided the former has planned in a structured way. In retirement planning, it is important to know what your expenses will be post retirement.

Based on that, you can start investing in investment instruments that can help you achieve your retirement goal.

There are many options available for retirement planning. One of the prominent options among them is National Pension System (NPS). 

The retirement-focussed scheme is market-linked, where one can select the investment scheme and equity exposure according to their risk appetite and retirement goals.

A NPS account holder can have Tier I and Tier II accounts.

They can contribute once, monthly, or any number of times in a financial year in NPS, starting from the age of 18 to 70.

At the retirement age of 60, they can withdraw up to 60 per cent of their retirement corpus.

From the remaining 40 per cent, they can purchase an annuity to get a monthly pension. 

The scheme launched in 2004 by the central government was initially opened to government sector employees, but it was later extended to private sector employees too. 

An NPS Tier I account is the default option for government sector employees.

Private sector employees can invest in Tier I and Tier II accounts.

A Tier I NPS account offers tax benefits up to Rs 2 lakh in a financial year.

NPS tax benefits

As per the NPS official website, NPS Tier I account holders can avail tax deduction of up to 10 per cent of their salary (basic+dearness allowance) under section 80 CCD(1) within the overall ceiling of Rs 1.50 lakh under Section 80 CCE.

They can also get a tax deduction of up to Rs 50,000 under Section 80 CCD(1B) over and above the overall ceiling of Rs 1.50 lakh under Section 80 CCE.

Expert view on how to get Rs 5 cr corpus and a Rs 1.46 lakh monthly salary in NPS

Kurian Jose, CEO, Tata Pension Management, reveals that to get a Rs 5 crore corpus and a monthly pension of Rs 1.46 lakh, one can start their NPS journey at 25 years of age with a monthly contribution of Rs 15,000. Here's what Jose says-

If you are 25 and looking to retire at 60 with the goal of creating a Rs 5 crore corpus and a monthly pension of over Rs 1 lakh, the National Pension System (NPS) can be a smart choice for your retirement planning. 

By contributing Rs 15,000 monthly and assuming a compounded annual return of 10 per cent from your NPS investment, you could accumulate approximately Rs 5.1 crore by the time you retire.

We would advise that you should be 75 per cent invested in Tier 1 – Equity and the remaining 25 per cent may be invested in Tier 1 – G (government securities) asset class.

As one exits the NPS accumulation phase at the age of 60, you're required to invest at least 40 per cent of your retirement corpus in an annuity, which in your case would be around Rs 2.06 crore. Investing this amount in an annuity plan with an expected return of 6 per cent could provide you with a monthly pension of approximately Rs 1.45 lakh until you reach 80.

This will also leave you with 60 per cent of corpus (Rs 3.08 crore), which can be withdrawn tax-free once you attain the age of 60.

This amount can be withdrawn either as a lump sum or systematically till one is 75 years old.

NPS Retirement Plan

Current Age : 25

•    Current Investments: 0

•    Retirement Age: 60

•    Monthly contribution: 15,000

•    Expected return on NPS investment: 10%

•    % of pension wealth to be invested in annuity: 40%

•    Expected Annuity rate of return: 6%

•    Expected Terminal age: 80

Results

•    Total Wealth generated for retirement: Rs 51,388,402
•    Pension amount invested in Annuity plan: Rs 20,555,361
•    Pension/Annuity per month post-retirement: Rs 144,68