NPS Planning: How Rs 5,000 monthly contribution can help you draw over Rs 1 lakh pension

National Pension System (NPS) monthly pension: National Pension System (NPS) is a market-linked retirement scheme where one can make a monthly contribution and get a lump sum amount and a monthly pension after that. If one starts early, even a small monthly contribution can help them draw a large monthly pension. One can contribute to NPS starting at age 18 and continue it till 70 years of age. NPS offers Tier-I and Tier-II accounts. In a Tier-I account, the lock-in period is 60 years of age. At retirement, one can withdraw up to 60 per cent lump sum, and the rest of 40 per cent should go into purchasing annuities to draw a monthly. If one wants, they can purchase annuities for all of their 100 per cent retirement corpus. 

Under certain conditions, one can withdraw their amount before the age of 60. The benefit of investing in a Tier-I NPS account is that one gets tax relaxation of up to Rs 1.50 lakh in a financial year under Section 80C of the Income Tax Act and a further Rs 50,000 exemption under Section 80CCD. Tier-II accounts are like any other account where one can withdraw money at any time. However, one doesn't get tax relaxation in a Tier-II account.

In this write-up, we will tell you how a monthly contribution of Rs 5,000 can help you generate nearly Rs 96,000 in monthly pensions post retirement.

For that, you need to start at 25 years of age. If you deposit Rs 5,000 every month in your NPS account and get a 10 per cent return on your investments. At 60 years of age, your total investment will be Rs 21 lakh, and the estimated corpus will be Rs 1,91,41,384.

At 60 years of age, you have two options. Either you can withdraw up to 60 per cent of your retirement corpus, or purchase annuities of all the amount to draw a monthly pension. 

The benefit of purchasing annuities with a 100 per cent corpus is that you will get a higher monthly pension. 

If you purchase annuities from the Rs 1,91,41,384 corpus and get a six per cent return from that, you will draw a monthly pension of Rs 95,707.

How you can you get Rs 100,000 pension?

For that, you need to start one year earlier and invest in NPS for one more year. Given the same conditions as mentioned above, your retirement corpus will be Rs 2,12,09,088. If you purchase annuities of the entire amount, you can get a monthly pension of Rs 1,06,045.

(Disclaimer: This is not investment advice. Please do your due diligence or consult an expert before planning your retirement).