National Pension Scheme (NPS) is a retirement scheme, by investing in which you can get a monthly pension of ₹ 1 lakh at the age of 60. A monthly investment of ₹ 13,100 from the age of 25 and an expected return of 10% can accumulate a corpus of ₹ 5 crore on retirement, out of which 40% of the amount will be safe for pension in the form of annuity.
New Delhi. The National Pension Scheme (NPS) is a retirement-cum-savings plan that works on a contribution-based system. Its main objective is to provide financial security to people after their retirement. The most important thing about NPS is that it does not guarantee any fixed benefit. Your pension amount is decided based on the investment you make and the return you get on it.
After retirement, your income stops but expenses increase or remain the same. In such a situation, a stable income source is required to maintain financial independence. If you want a monthly pension of ₹ 1 lakh after retirement, then you have to invest regularly in NPS. Let’s know its math.
Suppose you are 25 years old and you are starting to invest in NPS. You will invest till the age of 60, i.e. the investment period will be 35 years. It is assumed here that you will get a return of 10% on NPS, which is a normal expectation.
Monthly investment: ₹13,100
Total investment (in 35 years): ₹55.02 lakh
Total return: 10%
Mutual fund maturity amount: ₹5.01 crore
Annuity investment: 40% (₹2 crore)
Estimated annuity rate: 6%
Monthly pension after retirement: ₹1 lakh
What is an annuity?
In NPS, you must invest at least 40% of your total deposit amount in annuity scheme. The higher the annuity rate, the higher will be your monthly pension. With this investment you also get a tax exemption of up to ₹50,000 under section 80CCD(1B) of the Income Tax Act.
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