NPS: A 35-year old can get Rs 2 lakh as monthly pension by investing Rs 21,000 a month now; how much should you invest in NPS? It allows you to invest in various asset classes. For investors, it is crucial to understand NPS withdrawal rule. At least 40% of your accumulated corpus must be invested in an annuity plan for regular pension, while the remaining 60% can be withdrawn as a lump sum at the retirement. How should a 35-year-old invest in NPS to get a monthly pension of Rs 2 lakh after retirement?
When it comes to retirement planning, the sooner you start the better. Firstly, you don't need to invest a large amount every month to build an attractive retirement corpus. The longer you invest your money, the more you will save up for retirement. So, if you have just turned 35 and are contemplating how to build a sizeable retirement corpus for your “golden years”, here's what you need to do.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} The National Pension System (NPS) has emerged as one of the most popular investment vehicles for retirement planning. It offers you the option to invest in different types of asset classes — equity, corporate debt, government bonds and alternative investment funds. Regular investment and a little bit of planning can generate as much as Rs 2 lakh a month from NPS when you retire.
Let's get one thing straight at the beginning: The pension you earn from NPS after retirement will depend on how much corpus you can accumulate. Before you start investing, you need to know the withdrawal rules of NPS. At present, an NPS subscriber cannot withdraw the entire accumulated corpus on maturity. You have to invest at least 40% of the total NPS corpus in an annuity plan from a life insurance company. The annuity amount will get a regular pension after retirement. The remaining 60% can be withdrawn as a lump sum.
To understand how much you need to invest in NPS now to get a monthly pension of Rs 2 lakh, you need to do a back calculation.
How much should you invest now in NPS every month to get a monthly pension of Rs 2 lakh after retirement?
You are 35 and want to start investing in NPS. You have 25 years to accumulate a lump-sum corpus in NPS.
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To get a pension of Rs 2 lakh per month, the total accumulated NPS corpus needs to be Rs 2.77 crore on maturity or at the age of 60. Here we assume that the corpus will generate a 10% return in 20 years. According to rules, you need to mandatorily use 40% of your corpus to buy an annuity at the time of withdrawal. So, you will use Rs 1.11 crore to buy an annuity at the time of retirement. You will still have Rs 1.66 crore lump sum at the age of 60.
From annuity, you can get around 6% per annum. When you use 40% of the total NPS corpus or Rs 1.11 crore to buy an annuity at 6% interest per year, you will get a pension of Rs 60,648 every month.
You can invest the Rs 1.66 crore lump-sum amount in a balanced hybrid fund systematic investment plan (SWP). Assuming you get a 10% return per annum from this amount, you will get Rs 1,39,993 per month.
Using SWP with the lump sum and annuity plan, you will get a pension of Rs 2,00,581 every month at the time of retirement. How much do you need to invest in NPS to accumulate Rs 2.77 crore in 25 years?
As you start investing at 35, you need to put Rs 20,700 every month in NPS for the next 25 years.
NPS calculator: How a 35-year-old can get a monthly pension of Rs 2 lakh after retirement
Starting Age35
Monthly NPS contribution
Rs 20,700
Total corpus at 60
Rs 2.77 crore
Lumpsum value at 60%
Rs 1.66 crore
Monthly SWP from Lumpsum at 10% return
Rs 1,39,933
Annuity value at 40%
Rs 1.11 crore
Monthly pension from annuity
Rs 60,648
Total monthly income
Rs 2,00,581
However, if you wish to go for a lower monthly income of Rs 1 lakh during retirement, then Rs 1.38 crore as NPS corpus would be sufficient. You can save this amount by investing Rs 10,350 per month in NPS for 25 years if your investment gets a similar return. As you have more time to invest, you can even start with a smaller amount and gradually increase your investment amount.
Retirement planning: Choose NPS investment wisely to get attractive return
NPS subscribers have two investment options: Active choice and auto choice. Under the active choice option, the NPS subscriber can decide the allocation or ratio in which his NPS corpus is to be divided — equity, corporate debt, government debt and alternative investment funds. Under this option, you can invest up to 75% of the total corpus in equity. However, after 50, the upper limit of equity allocation starts reducing by 2.5% every year. On an average, you can have an equity exposure of 50% and above, which can give you an attractive return over a long-term period of 25 years.Keep in mind that the return from NPS and annuity will vary, depending on the market conditions. This is just a rough calculation of how much you need to invest every month to get a pension of Rs 2 lakh after you turn 60. If you get a higher return, you need to invest less. If you get a lower return, you need to invest more to generate a monthly pension of Rs 2 lakh.
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This story originally appeared on: India Times - Author:Faqs of Insurances
