NPS Calculator: By investing in NPS, you get regular pension after retirement. For this scheme, employees have to invest on a monthly or annual basis during their job. The more they invest and the younger they start investing, the bigger will be their retirement corpus.
NPS Calculator: After retirement, regular income from the job stops, so it is important that by that time you either have a good amount of savings or some other source of income. In 2009, to help citizens avoid such a problem, the government also provided the facility of National Pension System (NPS), commonly known as National Pension Scheme, to employees working in private sector and unorganized jobs.
Let us tell you that NPS was started in 2004 for government employees, who were earlier covered under the Old Pension Scheme (OPS).
Facility of regular pension after retirement
By investing in NPS, you keep getting regular pension after retirement. That is, after retirement, this scheme gives you financial independence and security. For this scheme, employees have to invest on a monthly or annual basis during their job. The more they invest and the younger they start investing, the bigger their retirement corpus will be.
How does the National Pension Scheme work?
The National Pension Scheme (NPS) works on a contribution model, which means that retirement benefits depend on your total contribution and the return on investment. Unlike the traditional pension system that pays a fixed amount, NPS allows people to control their retirement savings and increase their investment.
How to open an NPS account?
You can open two types of NPS accounts in this scheme: Tier I and Tier II. You can open a Tier II account only if you have a Tier I account. The tax benefits and withdrawal rules of both the accounts are different.
Comparing these two types of NPS accounts, Tier-I accounts have a lock-in period that lasts till the account holder’s retirement, while Tier-II accounts offer you flexibility, there is no lock-in period, which means you can withdraw anytime. For Tier-I accounts, a minimum opening deposit of Rs 500 is required, while Tier-II accounts require a minimum opening deposit of Rs 1,000.
Apart from this, it is mandatory to maintain a minimum balance of Rs 1,000 at the end of every financial year in Tier-I accounts, while there is no such rule for Tier-II accounts.
Till when can you invest in NPS?
You can invest in NPS till the age of 75 years. Till this age, you can continue investing in NPS and avail tax benefits.
Rules of investment and withdrawal in NPS:
There is no upper limit for NPS investment, but if you are investing in NPS with tax-saving in mind, you can claim tax benefits on investment of up to Rs 1.5 lakh under section 80C and an additional Rs 50,000 under subsection 80CCD (1B), i.e. up to Rs 2 lakh every year.
At present, you can withdraw up to 60% of the total amount as a lump sum on retirement, the remaining 40% is mandatorily invested in an annuity plan. However, under the new NPS guidelines, if the total amount is Rs 5 lakh or less, you are allowed to withdraw the entire amount without buying an annuity plan. This withdrawal is also tax-free.
How to get Rs 1 lakh pension on investment in NPS?
Suppose you start investing in NPS at the age of 20 and want to get a monthly pension of Rs 1 lakh after retiring at the age of 60. To achieve this goal, we will calculate your monthly investment as per NPS rules, keeping in mind that 40% of the corpus will be used to buy an annuity plan while the remaining 60% can be withdrawn as a lump sum.
Also, for the calculation, we will assume a rate of return of 10% (based on past trends) on NPS investments and 6% return on annuity during your working years.
You will have to invest Rs 7,850 every month
The calculation shows that if you start investing Rs 7,850 every month in NPS and invest till the age of 60 i.e. for 40 years, you will get a pension of Rs 1 lakh every month and also a huge amount. (For calculation, we have used SBI Pension Fund Calculator.)
- Starting age: 20 years
- Monthly investment: Rs 7,850
- Expected rate of return on investment: 10%
- Total investment amount: Rs 37,68,000
- Interest earned on investment: Rs 4,62,89,792
- Total deposit amount: Rs 5,00,57,792
- Out of this total deposit of Rs 5 crore, you invest 40% in annuity scheme and withdraw 60% as a lump sum.
- Corpus invested in annuity: Rs 2,00,23,117
- Annuity rate: 6%
- Lump sum withdrawn: Rs 3,00,34,675
- Pension per month after retirement: Rs 1,00,116
- That is, by investing Rs 7,850 every month for 40 years, you can expect to get a monthly pension of Rs 1 lakh after the age of 60.
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