Retirement Planning: How you can get Rs 50,000 monthly pension through NPS investment; know calculations

NPS, Retirement Planning, How you can get Rs 50,000 monthly pension through NPS investment: Retirement planning is a crucial part of financial decision-making. Job opportunities tend to decrease as we grow older. As time passes, inflation also rises, and subsisting only on savings might be inadequate for you after retirement.

To make post retirement eventful and achieve financial freedom, it is necessary that you invest in a retirement plan that can give you a regular income once you reach retirement age. To meet that requirement, National Pension Scheme (NPS) is one of the most effective tools in the country because it gives you the luxury of having a lump sum at  retirement age and regular monthly income after that. 

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Primarily introduced for central government employees in 2004, the scheme was opened for private sector employees too under the name of National Pension System.  The lump sum you get and the monthly pension you receive depend on your contributions to NPS. The more you contribute, the higher will be the corpus, and the greater will be your pension. 

Similarly, the earlier you start, the greater the benefit of NPS contributions. Since NPS provides compounding returns, a long investment period will grow your income faster.  

E.g. if one starts in the mid-20s, they will have a larger time frame to invest, and, therefore, even smaller investments can help them build a sizeable corpus at the time of retirement.

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However, if someone plans to retire in just a few years, they have to invest a larger amount to get the same level of corpus as someone who starts in the mid-20s. AR Hemant, AVP, BankBazaar.com said, "Retirement fund requirements are typically massive and run into crores when you consider factors such as life expectancy and inflation. The easiest way to hit your retirement target and remain sustainably retired is to save small sums systematically every month over several decades.

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"Risk-on options such as equity index funds and equity mutual funds are best for long-term investors. Risk-off options like PPF and EPF can also help but offer lower inflation-adjusted returns. Then there are hybrid solutions like NPS that also work well by investing in a mix of high-risk and low-risk asset classes," he added. In this write-up, we will tell you how you can get Rs 50,000 monthly pension after investing a small amount every month. 

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NPS: How to get Rs 50,000 pension every month?

If you start investing Rs 6,550/month in NPS at the age of 25 and invest for the next 35 years, you will end up generating a pension of Rs 50,000 per month by the retirement age of 60 years.

NPS: Here's the calculation:

Age: 25 years

Retirement age: 60

Contribution: Rs 6,650/month

Expected Return: 10%

The individual will end up with a total corpus of Rs 2,50,75,245.

If you take out the lumpsum of 60 per cent from that corpus (60 per cent is the maximum limit you can withdraw at retirement age), in that case, you will be left with an annuity of 40 per cent.
The government invests annuities in debt funds or corporate bonds where the invested amount generates a fixed income. If you get a six per cent return on annuity, then-  

The amount invested in the annuity will be: Rs 1,00,30,098.

Expected monthly pension: Rs 50,150

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NPS: What should be size of our retirement corpus?

One can use a reliable online calculator or discuss the strategy with a financial planner to estimate the corpus amount and the contributions you need to make from that particular age to achieve that target.  

Hemant says, "You must invest in a diversified way as per your risk-taking and investing appetite and stay invested for the long-term for compounding to do its magic. Your goal should be saving at least 300 times your monthly income need on the day you retire," he further added.  

(Disclaimer: Investment in NPS is subject to market risks. Consult a professional advisor before making an investment decision.)

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