NPS Scheme: National Pension System is a better option for private sector employees to arrange retirement corpus as well as monthly pension. Retirement planning should also start with the initial days of the job.
So that you can build a substantial retirement corpus in the long run. A large retirement fund is also available in lump sum upon retirement on investment in NPS. If a person starts investing in NPS 10,000 monthly at the age of 21, then he can start getting a monthly pension of Rs 1.15 lakh on retirement.
NPS Calculator: Benefits of Starting at the Age of 21
Suppose, an investor joins a job at the age of 21 and simultaneously starts monthly investment of Rs 10,000 in NPS. In this, if you join NPS from the age of 21, then you will have to invest in it till the age of 60, that is, for 39 years. Now look at the calculation-
- Monthly investment in NPS: Rs 10,000 (Rs 1,20,000 per annum)
- Total contribution in 39 years: Rs 46.80 lakh
- Estimated Return on Investment: 10%
- Total Corpus on Maturity: Rs 5.76 crore
- Annuity Purchase: 40%
- Estimated Annuity Rate: 6%
- Pension at the age of 60: Rs 1.15 lakh per month
(Note: This calculation has been done on the calculator of the NPS Trust. The figures for pension and funds are approximate. Actual figures may vary.)
3.45 crore fund at the age of 60?
In NPS, if you take 40 per cent annuity (minimum that is required to be kept) and the annuity rate is 6 per cent per annum, then after retirement you will get Rs 3.45 crore in lump sum and 2.30 crore will go into annuity. Now from this annuity amount, you will get a pension of Rs 1,15,217 every month. The higher the annuity amount, the higher the pension you will get.
Annuity is actually a contract between you and the insurance company. Under this contract, it is necessary to buy an annuity of at least 40 percent of the amount in the National Pension System. The higher the amount, the higher will be the pension amount. The amount invested under annuity is received in the form of pension after retirement and the balance amount of NPS can be withdrawn in a lump sum.
NPS: Who can invest
In NPS, any citizen of India whose age is between 18 to 65 years can take part in this scheme after some necessary procedures. The responsibility of investing the amount deposited in NPS is given to the pension fund managers registered by PFRDA. They invest your investments in equity, government securities and non-government securities apart from fixed income instruments.
NPS: Extra benefit of tax exemption
Under NPS, under section 80CCD(1B) of the Income Tax Act, the benefit of tax exemption is available on investment up to Rs 50,000. NPS can also help you in extra tax savings if you have completed the limit up to Rs 1.5 lakh under section 80C. Withdrawal up to 60 percent of the amount on maturity of this plan is not taxed.
A Best Plan for Retirement Savings: Experts
Manish P. Hinger, CEO of Wealth Management Company Fintoo says that NPS has always been a best option for retirement savings. Because, it has the ability to give the benefits of both equity and debt to the investors. In this, the option of choosing equity and debt can be chosen by the investor considering his risk appetite. This is a better product in terms of better returns with less risk. In this, Tier 1 account must be selected for tax benefit.
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