NPS Calculator: How much investment is required to get a pension of Rs 1 lakh every month? Here is the complete calculation
By investing in NPS, you keep getting regular pension after retirement. For this scheme, employees have to invest on monthly or yearly basis during their job. The more they invest and the younger the age at which they start investing, the bigger will be their retirement corpus.
National Pension Scheme (NPS) Calculator online: You can invest in NPS till the age of 75 years. You can avail tax benefits by continuing to invest in NPS till this age.
NPS Calculator: After retirement, the regular income from the job stops, so it is important that by that time you either have a good amount of savings or some other source of income. In 2009, to help citizens avoid such a problem, the government also provided the facility of National Pension System (NPS), commonly known as National Pension Scheme, to employees working in the private sector and unorganized jobs.
Let us tell you that NPS was started in 2004 for government employees, who were earlier covered under the Old Pension Scheme (OPS).
Facility of regular pension after retirement
By investing in NPS, you keep getting regular pension after retirement. That is, this scheme gives you financial independence and security after retirement. For this scheme, employees have to invest on a monthly or annual basis during their job. The more they invest and the younger the age at which they start investing, the bigger will be their retirement corpus.
How does the National Pension Scheme work?
The National Pension Scheme (NPS) works on a contribution model, which means that retirement benefits depend on your total contribution and the returns on your investments. Unlike traditional pension systems that pay a fixed amount, the NPS allows people to take control of their retirement savings and grow their investments.
How to open NPS account?
In this scheme, you can open two types of NPS accounts: Tier I and Tier II. You can open a Tier II account only if you have a Tier I account. The tax benefits and withdrawal rules of both the accounts are different.
Comparing these two types of NPS accounts, Tier-I accounts have a lock-in period that lasts till the retirement of the account holder, while Tier-II accounts offer you flexibility, there is no lock-in period, which means you can withdraw at any time. For Tier-I accounts, a minimum opening deposit of Rs 500 is required, while Tier-II accounts require a minimum opening deposit of Rs 1,000.
Additionally, it is mandatory to maintain a minimum balance of Rs 1,000 at the end of every financial year in Tier-I accounts, while there is no such rule for Tier-II accounts.
For how long can you invest in NPS?
You can invest in NPS till the age of 75. By continuing to invest in NPS till this age, you can avail tax benefits.
Rules of investment and withdrawal in NPS:
There is no upper limit for NPS investment, but if you are investing in NPS with tax-saving in mind, you can claim tax benefits on investment of up to Rs 1.5 lakh under section 80C and an additional Rs 50,000 under sub-section 80CCD (1B), i.e. up to Rs 2 lakh per year.
Currently, you can withdraw up to 60% of the total corpus as a lump sum on retirement, the remaining 40% is mandatorily invested in an annuity plan. However, under the new NPS guidelines, if the total corpus is Rs 5 lakh or less, you are allowed to withdraw the entire amount without buying an annuity plan. This withdrawal is also tax-free.
How to get Rs 1 lakh pension on investing in NPS?
Suppose you start investing in NPS at the age of 20 and want to receive a monthly pension of Rs 1 lakh after retiring at the age of 60. To achieve this goal, we will calculate your monthly investment as per NPS rules, keeping in mind that 40% of the corpus will be used to buy an annuity plan while the remaining 60% can be withdrawn as a lump sum.
Additionally, we will assume a 10% rate of return on NPS investments (based on past trends) and 6% return on annuity during your working years for the calculations.
You will have to invest Rs 7,850 every month
The calculation shows that if you start investing Rs 7,850 every month in NPS and invest for 40 years till the age of 60, you will get a pension of Rs 1 lakh every month and a huge amount as well. (For the calculation, we have used SBI Pension Fund Calculator.)
- Age to start investing: 20 years
- Monthly investment: Rs 7,850
- Expected rate of return on investment: 10%
- Total investment amount: Rs 37,68,000
- Interest earned on investment: Rs 4,62,89,792
- Total deposit amount: Rs 5,00,57,792
- Out of this total corpus of Rs 5 crore, you invest 40% in annuity scheme and withdraw 60% of the amount as a lump sum.
- Corpus invested in annuity: Rs 2,00,23,117
- Annuity Rate: 6%
- Lumpsum withdrawal amount: Rs 3,00,34,675
- Pension every month after retirement: Rs 1,00,116
That is, by investing Rs 7,850 every month for 40 years, you can expect to get a monthly pension of Rs 1 lakh after the age of 60.