While planning retirement you have to do reverse calculations. That means you do not have to think about how much money you want to invest, rather you have to think about how much money you will need at retirement.
Retirement planning is very important and the best instrument for this is NPS. While planning retirement you have to do reverse calculations. That means you do not have to think about how much money you want to invest, rather you have to think about how much money you will need at retirement. If we look at the metro cities in today’s time, one needs around Rs 50 thousand every month to live a good life there.
This includes your house rent, vehicle expenses, your food, drinks and travelling. Now if you are 30 years old today and want to live a similar life doing nothing after 30 years, i.e. after retirement at the age of 60, then at that time you will need 3-4 times the money as compared to today. That means you will need around Rs 2 lakh every month upon retirement.
You will have two options on retirement
When you retire, you will have two options. Either you invest all your money in an annuity plan and start taking pension from it. Or withdraw 60 percent of the amount and make an annuity plan with the remaining 40 percent. On retirement, at least 40 percent of NPS has to be invested in an annuity plan. We are assuming that you invest your entire corpus in an annuity plan and get pension on it. Let us know how much corpus you will need in such a situation and how much money you need to invest every month for it.
First let us understand how much corpus will be required
If we look at the current FD rates, they remain around 6-7 percent. We assume that when you retire, you will get at least 5 percent interest and if you get more interest, you will get more benefits. In such a situation, if you need Rs 2 lakh every month, then you will need an interest of Rs 24 lakh annually. If you want interest of Rs 24 lakh at the rate of 5 percent, then for this you should have a corpus of around Rs 5 crore. With this you will get interest of about Rs 25 lakh at the rate of 5 percent per annum.
How much should one invest to create a corpus of Rs 5 crore?
If you are currently 30 years old and want to create a corpus of Rs 5 crore on retirement, then first you have to understand how much interest you can get. An average interest of 10 percent is easily available on NPS. In such a situation, if you invest around Rs 22,150 in NPS every month, then in 30 years your money will become around Rs 5 crore at the rate of 10 percent interest per annum. This would be possible because of the power of compounding. Your total investment in these 30 years will be around Rs 79.74 lakh. You will get interest of around Rs 4.21 crore on this.
