NPS Calculation: Everyone needs a regular income and a lump sum upon retirement to live comfortably for the rest of their lives. However, planning ahead is essential. If you don’t plan properly and at the right time, you won’t be able to accumulate a substantial pension and a lump sum.
Know the rules of NPS
Therefore, people are often advised to invest early. If your goal is to receive a large pension amount, the government’s NPS scheme may be best for you, which can provide a monthly pension of Rs 1 lakh or more after retirement. NPS stands for National Pension System, in which the account is portable, meaning it can be operated from anywhere in the country.
Under this scheme, 60% of the total deposit can be withdrawn after retirement. The remaining 40% goes into the pension scheme. NPS is administered by the Pension Fund Regulatory and Development Authority (PFRDA). Tier 1 and Tier 2 accounts can be opened under NPS. Tier 2 accounts can be opened only after opening a Tier 1 account.
Withdrawal Guidelines for NPS
At present, individuals can withdraw a maximum of 60% of their total corpus as a lump sum, while the remaining 40% is allocated for an annuity pension. According to the updated NPS regulations, if the total corpus is ₹5 lakh or less, subscribers are allowed to withdraw the full amount without the necessity of purchasing an annuity plan. This withdrawal is also exempt from taxes.
When is the right age to start investing in NPS?
For employees in the private sector, those who are 35 years old or younger can have a higher equity exposure, which can go up to 75%. The Active Choice option provides 75% equity exposure until the age of 50. By the time you reach 60, this exposure will decrease to between 5% and 50%. Thus, starting your planning at age 35 could be the most advantageous.
How can you achieve a pension of Rs 1 lakh?
If you are considering investing in NPS and are currently 40 years old, you could secure a pension of Rs 1 lakh by the time you turn 60. To do this, you would need to contribute Rs 20,000 each month to your NPS account, with the possibility of increasing this contribution by 10% annually.
With an estimated return of 10%, after 20 years, your total investment would amount to around Rs 3.23 crore. The total return would be Rs 1.85 crore, while your total investment would be Rs 1.37 crore. You would also enjoy total tax savings of Rs 41.23 lakh. At this point, you would need to purchase an annuity to secure your pension.
Investment of pension wealth in annuity plans: 55%
Annuity Rate: 8%
Pension Wealth: Rs 1.62 crore
Lump sum withdrawal amount: Rs 1.62 crore
Monthly pension: Approximately Rs 1 lakh
By strategically planning and investing in this manner, you will be able to withdraw a lump sum corpus of Rs 1.62 crore (roughly $100,000 USD) and receive a monthly pension of about Rs 1 lakh (also around $100,000 USD).
