Compounding Returns: How investing Rs 442/day can help you build Rs 5 crores NPS retirement corpus and get Rs 2.50 lakh monthly pension

It’s important to think about how much money you'll need in retirement and where to invest it. One of the best options available is the National Pension System (NPS). By investing a small amount regularly, you can build a substantial sum by the time you retire. 

Let’s see how you can achieve your goal of Rs 5 crores for retirement.

This strategy is particularly beneficial for young professionals who have just started their careers. If you’re older, you may still be able to accumulate a substantial amount, though perhaps not Rs 5 crores. 

Let’s assume you started working before the age of 25. If you save Rs 442 daily from your salary and invest it in NPS, you can achieve Rs 5 crores by retirement.

By saving Rs 442 daily, you’ll accumulate approximately Rs 13,260 each month. If you begin investing at age 25 and continue until you’re 60, you’ll be investing for a total of 35 years. 

Assuming an average return of 10 per cent from NPS, your investment could grow to approximately Rs 5.03 crores by age 60. This means you will have a corpus of over Rs 5 crores at your disposal.

If you invest Rs 13,260 monthly in NPS over 35 years, your total contributions will amount to Rs 55,69,200. The power of compounding allows you to earn interest not just on your initial investment but also on the interest accrued. In 35 years, your total investment will yield Rs 4,47,74,221 in long-term capital gain, bringing your total to Rs 5,03,43,421.

It’s important to note that you won’t receive the full Rs 5.03 crores in cash upon retirement. The NPS allows you to withdraw only 60 per cent of the total amount upon maturity at age 60. This means you can withdraw about Rs 3 crores, while the remaining Rs 2 crores must be invested in an annuity plan. This annuity will provide you with a steady income throughout your retirement.

Let’s suppose you invest 100 per cent of your funds in an annuity plan with an expected annuity rate of 6 per cent. In that case, you could receive approximately Rs 2.53 lakh as a monthly pension.

NPS funds mature only after you turn 60, meaning you cannot withdraw them earlier. However, in emergencies, such as medical expenses or funding children’s education, partial withdrawals are permitted. 

Be aware that withdrawal rules may change, so it’s wise to familiarise yourself with the NPS guidelines before making any withdrawals. Ideally, you should aim to withdraw your NPS funds only after retirement to ensure financial stability in your later years.

(Disclaimer: Our calculations are projections and not investment advice. Do you own due diligence or consult an expert for financial planning)