NPS Lump Sum Withdrawal: This facility enables you withdraw retirement corpus in phases; your Rs 2 cr corpus can help you earn Rs 3.4 cr in 15 years
NPS Withdrawal (SLW)+ Monthly Annuity Pension: National Pension System (NPS) not only has the provision of providing a monthly pension from the annuity plan, but an NPS subscriber can also opt for monthly withdrawal from their lump sum corpus. This can increase their overall corpus value considerably.
NPS Withdrawal (SLW)+ Monthly Pension: National Pension System (NPS) is a market-linked retirement scheme where one can invest monthly or lump sum and withdraw their retirement corpus at 60 years of age. The retirement corpus for Tier I account holders is tax-free. As per the NPS rules, a subscriber can withdraw up to 40 per cent of their retirement corpus at 60 years of age; with the rest of the amount, they need to purchase an annuity plan, return from which provides them the monthly pension. If the subscriber wants, they can purchase annuity from the 100 per cent retirement corpus. But what if someone doesn't need lump amount at retirement? Do they have an option to withdraw this lump sum amount in phases, or do they need to withdraw it at one go at any point in time?
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What is Systematic Lump Sum Withdrawal (SLW) plan in NPS?
People who don't want to withdraw their lump sum corpus in one go can opt for Systematic Lump Sum Withdrawal (SLW) plan. It is equal to a Systematic Withdrawal Plan (SLW) in a mutual fund where an investor invests a lump sum amount, gets return on that, and withdraws a monthly amount.
How will it add to their income?
While an NPS subscriber will keep getting taxable monthly pension from the annuity plan of their choice, they will get extra tax-free income through SLW. The good part is that both will keep getting returns on both investments.
Types of withdrawals in SLW
SLW offers monthly, quarterly, half-yearly, and yearly withdrawals.
Lump sum withdrawal or SLW? Which is a better option?
As per Max Life Pension Fund Management, SLW or lumpsum withdrawal is completely the choice of a subscriber. It can be based as per the financial need at the time of retirement.
If there is a need for lump sum money, one can withdraw 60 per cent of NPS corpus tax-free.
Combination of SLW and immediate annuity can be an efficient strategy for the following reasons:
Larger income- While exercising the SLW option, you stay invested in the market for a longer time, which is an opportunity to create larger wealth.
Predictable income post-retirement: While choosing an immediate annuity from 40 per cent of the balanced NPS corpus helps in guaranteed payouts for life long at rates that are locked in today; hence, it shields from reinvestment risk.
The annuity payout amount can be invested further to generate further wealth, while SLW ensures regular income.
Who should choose SLW?
Max Life Pension Fund Management says everyone can choose SLW. On retirement, people get money in lump sum from PF, gratuity, and other employment benefits, which fulfil the immediate corpus requirements. So we can utilise the 60 per cent of NPS corpus to get payout in a phased or staggered manner rather than lumpsum by the way of SLW.
Are there some cons to selecting the SLW?
In SLW we keep the money invested in the market, which exposes it to market fluctuations, which helps in generating higher returns. However, on the downside, there is a tenure restriction with the SLW option, i.e., you can stay invested till the age of 75 years, which limits the opportunity for wealth creation given the cycles of the market.
SLW withdrawal methods
Age-based - In this option, one can select the age up to which SLW is required with the maximum age limit being an individual attaining the age of 75 years.
SLW withdrawal methods
Amount-based - In this option, one can select the amount of withdrawal as per the desired frequency till the age of 75 years.
SLW calculation
Suppose a person has a Rs 2 crore corpus at 60 years of age. They purchase annuity with 40 per cent, and for the rest, Rs 1.20 crore, they start SLW. By the age of 75, how much amount will they withdraw?
SLW calculation chart (for age-based withdrawal)
| Age Based Withdrawl | |||||
| Year | Value | Growth In Balance Investment @ 10% | Yearly Withdrawal | Annuity Payout by Maxlife for 80 Lacs @ 7.04% | Total Income |
| 1 | 12000000 | - | 800000 | 562944 | 1362944 |
| 2 | 11200000 | 12320000 | 880000 | 562944 | 1442944 |
| 3 | 11440000 | 12584000 | 968000 | 562944 | 1530944 |
| 4 | 11616000 | 12777600 | 1064800 | 562944 | 1627744 |
| 5 | 11712800 | 12884080 | 1171280 | 562944 | 1734224 |
| 6 | 11712800 | 12884080 | 1288408 | 562944 | 1851352 |
| 7 | 11595672 | 12755239 | 1417249 | 562944 | 1980193 |
| 8 | 11337990.4 | 12471789 | 1558974 | 562944 | 2121918 |
| 9 | 10912815.76 | 12004097 | 1714871 | 562944 | 2277815 |
| 10 | 10289226.29 | 11318149 | 1886358 | 562944 | 2449302 |
| 11 | 9431790.764 | 10374970 | 2074994 | 562944 | 2637938 |
| 12 | 8299975.872 | 9129973 | 2282493 | 562944 | 2845437 |
| 13 | 6847480.095 | 7532228 | 2510743 | 562944 | 3073687 |
| 14 | 5021485.403 | 5523634 | 2761817 | 562944 | 3324761 |
| 15 | 2761816.972 | 3037999 | 3037999 | 562944 | 3600943 |
| Tenure 15 years | 15 years | 25417985 | 8444160 | ||
| Give | Rs 12000000 | ||||
| Get | Rs 25417985 | ||||
| Assumed Market Returns | 10% | ||||
| Yearly Payout | Fund Value/Remaining number of years | ||||
| Total withdrawal (SLW+annuity) | 33862145 |
SLW calculation chart (for amount-based withdrawal)
| Amount Based Withdrawl | |||||
| Year | Value | Growth In Balance Investment @ 10% | Yearly Withdrawal | Annuity Payout by Maxlife for 80 Lacs @ 7.04% | Total Income |
| 1 | 12000000 | - | 1200000 | 562944 | 1762944 |
| 2 | 10800000 | 11880000 | 1200000 | 562944 | 1762944 |
| 3 | 10680000 | 11748000 | 1200000 | 562944 | 1762944 |
| 4 | 10548000 | 11602800 | 1200000 | 562944 | 1762944 |
| 5 | 10402800 | 11443080 | 1200000 | 562944 | 1762944 |
| 6 | 10243080 | 11267388 | 1200000 | 562944 | 1762944 |
| 7 | 10067388 | 11074127 | 1200000 | 562944 | 1762944 |
| 8 | 9874126.8 | 10861539 | 1200000 | 562944 | 1762944 |
| 9 | 9661539.5 | 10627693 | 1200000 | 562944 | 1762944 |
| 10 | 9427693.4 | 10370463 | 1200000 | 562944 | 1762944 |
| 11 | 9170462.8 | 10087509 | 1200000 | 562944 | 1762944 |
| 12 | 8887509 | 9776260 | 1200000 | 562944 | 1762944 |
| 13 | 8576260 | 9433886 | 1200000 | 562944 | 1762944 |
| 14 | 8233885.9 | 9057275 | 1200000 | 562944 | 1762944 |
| 15 | 7857274.5 | 8643002 | 8643002 | 562944 | 9205946 |
| Tenure | 15 years | 25443002 | 8444160 | ||
| Give | Rs 12000000 | ||||
| Get | Rs 25443002 | ||||
| Assumed Market Returns | 10% | ||||
| Yearly Payout | 1200000 | ||||
| Total withdrawal (SLW+annuity) | 33887162 |