Retirement Planning: In today’s fast-paced life, people often overlook their future financial security. While they earn well during their job, their income stops after retirement. Without savings and prudent planning, financial difficulties arise. The National Pension System, launched by the government with the aim of providing a secure retirement and a regular pension, can prove to be a good solution to this problem. Even small investments at the right age can create a substantial corpus over time.

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How NPS Works

NPS is a long-term investment scheme in which employed individuals contribute regularly from their income. This amount is invested in market-linked investments, which offer the potential for good returns over time. The returns on the funds deposited in the account increase rapidly due to compounding. Upon reaching the age of 60, investors can withdraw 60% of their deposits tax-free, while the remaining 40% must be invested in an annuity plan. An annuity provides a monthly pension for life.

The biggest benefit of investing at age 25

The most important rule of retirement planning is that the earlier you start investing, the larger your corpus will be. For example, if you deposit ₹5,000 per month into an NPS at age 25 and continue investing until you reach 60, you will accumulate a total corpus of ₹21 lakh in 35 years. Assuming an average annual return of 10%, this corpus could reach approximately ₹1.76 crore by age 60. This clearly demonstrates the power of compounding, where a small amount invested consistently can grow into a corpus worth crores over time.

Retirement Pension

At the age of 60, when an investor has a corpus of ₹1.76 crore (approximately ₹1.06 crore) tax-free, they can withdraw 60% of this corpus, or approximately ₹1.06 crore (approximately ₹70.76 lakh). Investing the remaining ₹70.76 lakh (approximately ₹70.76 lakh) in an annuity plan, assuming a 6% return, can yield a monthly pension of approximately ₹35,380, which provides financial support after retirement.

Potential Benefits of Investing the Entire Amount

If an investor invests the entire ₹1.76 crore (approximately ₹17.6 million) in an annuity instead of withdrawing the tax-free 60% corpus, they can receive a higher pension. Assuming a 6% annual return, the potential for a monthly pension of approximately ₹88,450 (approximately ₹88,450). However, a lump sum withdrawal is not possible in this situation.

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Major Losses of Starting Investments Late

The impact of delays in NPS investments is clearly visible on retirement funds. If the same person starts investing Rs 5,000 per month at the age of 35 instead of 25, they will only have 25 years to invest. The total investment during this period will be Rs 15 lakh, and at an average return of 10 percent, the total corpus by the age of 60 will be only Rs 66.38 lakh. As a rule, purchasing an annuity of 40 percent, or approximately Rs 26.55 lakh, will yield a monthly pension of only Rs 13,276, assuming a return of 6 percent. This comparison clearly shows that a delay of 10 years significantly reduces the pension amount.