Retirement Planning: Starting NPS contribution at 40, know your monthly investment amount to get Rs 1 lakh pension
National Pension System: One can contribute from the age of 18 till 75 at least once in a financial year, or on a monthly basis. The Tier I scheme has a lock-in period of the retirement age of 60 years. At 60, one can withdraw up to 60 per cent of their retirement corpus and invest the rest of 40 per cent in an annuity plan to draw a monthly pension. If one wants, they can purchase annuity of their 100 per cent corpus.
NPS Pension: National Pension System (NPS) is a pension scheme where one gets market-linked returns. A NPS subscriber can choose equity exposure as per their risk appetite and retirement goal. They can select up to 75 per cent equity exposure. One can contribute from the age of 18 till 75 at least once in a financial year, or on a monthly basis. The Tier I scheme has a lock-in period of the retirement age of 60 years. At 60, one can withdraw up to 60 per cent of their retirement corpus and invest the rest of 40 per cent in an annuity plan to draw a monthly pension. If one wants, they can purchase annuity of their 100 per cent corpus. Early starters have an advantage in NPS as the scheme offers compounding where the corpus is likely to grow faster as it gets older. Here, through projection, we will tell you how much minimum monthly contribution an NPS subscriber who is starting contributing at 40 years of age needs to draw a monthly pension of Rs 1 lakh at 60.
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NPS calculation condition
Before we start our calculation, let's put some basic conditions. In the last 10 years, all NPS equity mutual fund Tier I schemes have given at least 13.45 per cent annualised returns.
NPS calculation condition
Since in our calculation we are keeping 75 per cent equity and 25 per cent in debt exposure, we expect to get at least 11 per cent return with that combination.
NPS calculation condition
We will not withdraw any amount at 60 years of age and purchase annuity from the entire corpus. On annuity, we are expecting a return of 7 per cent.
NPS monthly contribution
As per the NPS Trust calculator, if someone is 40 years of age and wants a Rs 1 lakh monthly pension as per our predetermined conditions, they need to make a monthly investment of at least Rs 19,650. Know how
How NPS calculation will work
If one is making Rs 19,650 monthly contribution to NPS for 20 years, their contribution in that duration will be Rs 47,16,000.
How NPS calculation will work
At 11 per cent annualised return, the total return will be Rs 1,24,49,711. It means the total corpus at the time of retirement will be Rs 1,71,65,711.
How NPS calculation will work
Since we are not withdrawing any lump sum amount at retirement, we will purchase an annuity plan for a monthly pension with our corpus of Rs 1,71,65,711.
How NPS calculation will work
If you invest that amount and get a 7 per cent return on that, your monthly NPS pension will be Rs 1,00,133.
Disclaimer
These calculation are just projections. Do your own due diligence or consult an advisor for retirement planning.