Retirement planning: Many people choose the National Pension System i.e. NPS, in which the money is locked till the age of 60 years. Now the question arises that how much money should you invest every month, so that it is enough for your old age?
Retirement planning is very important so that you do not have to support anyone in old age. People plan their retirement in many ways. Some people take the help of PPF for this and some invest money in EPF. At the same time, many people choose the National Pension System i.e. NPS, in which the money is locked till the age of 60 years. Now the question arises that how much money should you invest every month, so that it is enough for your old age? Let us understand how much money you will need in retirement.
First understand how much money will be needed on retirement?
How much money you need in retirement may be different for everyone. According to your lifestyle, you have to understand how much money you will need in old age. For this, first of all you will have to understand your current expenses and then increment it every year keeping the inflation rate in mind. This will let you know how much money you will need at the time of retirement or at a certain age.
Let us assume that the current salary of a 30 year old person is Rs 50 thousand. In a family of two people i.e. husband and wife, you would be spending around Rs 25 thousand every month, whereas Rs 25 thousand can be left with you. Now, if you proceed with this as a value, then you will invest in NPS for the next 30 years. Let us assume that inflation will increase at the rate of 3-4 percent every year.
According to this, if compounding interest is calculated on Rs 25 thousand at the rate of 3 percent in 30 years, it will come to around Rs 60 thousand. That means you will need a pension of at least Rs 60 thousand per month upon retirement. Keep in mind that this formula is only for those people whose age is 30 years and salary is 50 thousand, out of which 25 thousand is used for their household expenses.
Will need Rs 1.5 crore on retirement
The interest rates on savings keep increasing and decreasing continuously. Sometimes it becomes 5 percent and now it even reaches 7-8 percent. We assume that at the time of retirement you will get at least 5 percent return on your savings. In such a situation, if you want Rs 60 thousand every month, then at the age of 60 you will need a retirement corpus of about Rs 1.5 crore. In such a situation, you will be able to get a pension of around Rs 62,500 every month. Now the question is how much money you will have to deposit every month for this.
Invest Rs 7500 every month
If you are 30 years old then you will have to invest Rs 7500 every month to accumulate Rs 1.5 crore by the age of 60. We assume that you will get an average of 10 percent interest on this investment. You can easily get 10 percent interest by investing in NPS. If you deposit around Rs 7500 every month in NPS, then in 30 years you will invest a total of Rs 27 lakh.
You will get interest of around Rs 1.43 crore on this. In this way, your total amount on maturity will be around Rs 1.7 crore. In such a situation, you will be able to get a pension of about Rs 70 thousand every month. Keep in mind, if your age is more than 30 years, then increase your investment every month accordingly, so that you can get more money till retirement.
Also keep this in mind
When you retire, you will have two options. Or you can invest all your money in an annuity plan and take pension from it. Or you can 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 will invest all the money in an annuity plan on maturity. If you do not want to invest all the money in annuity, then you can change your calculation accordingly.
How will money never run out?
If you invest all the money received from NPS in an annuity plan and spend your expenses only on the interest on it, then you will always have money left. Suppose you are earning interest every month on your corpus of Rs 1.5 crore. In such a situation, your principal amount will always remain the same. However, inflation will continue to rise even in the post-retirement years, so to cope with it you will have to either earn some extra income or reduce your expenses. Well, if you are with your children in old age, then your expenses can remain under control to a great extent. It would be best for you to keep yourself busy in some work even in old age, be it blogging, consulting, advising or any such work, in which you do not have to work the whole day, but earn some money. Keep coming.
