NPS Calculator: Want a monthly pension of ₹20,000 after retirement? Find out how large your corpus needs to be by age 60..
NPS Pension Calculation: Having a fixed monthly income is crucial for a stress-free life after retirement. The National Pension System (NPS) has emerged as the most popular and tax-efficient avenue for retirement planning in the country. However, a common question among investors is: "If I want a monthly pension of ₹20,000 after the age of 60, how much capital do I need to accumulate in my NPS account?"
The answer depends on the proportion of your total corpus that you allocate to an annuity versus the amount you withdraw as a lump sum upon retirement. Let us break down the math behind this in simple terms.
How much corpus is required for a ₹20,000 pension?
According to NPS regulations, upon reaching the age of 60, it is mandatory to invest at least 40% of your total corpus in an annuity, which provides a lifelong pension. You can withdraw the remaining 60% as a tax-free lump sum. Currently, the average annuity rate offered by major insurance companies in India is around 6% per annum. Scenario 1: When you invest 100% of the money in an annuity (Maximum pension)
If you do not withdraw any lump-sum cash upon retirement and invest your entire 100% fund into an annuity for the pension:
Required annuity corpus: ₹40 lakh
Monthly pension (at a 6% annuity rate): ₹20,000/month
Total retirement fund: ₹40 lakh
Scenario 2: When you opt for 40% annuity and 60% lump-sum
If you wish to withdraw 60% of the money as cash and generate a pension of ₹20,000/month using only the mandatory 40% portion:
Required annuity portion (40%): ₹40 lakh
Lump-sum cash withdrawal (60%): ₹60 lakh (completely tax-free)
Total retirement fund (100%): ₹1 crore
NPS Calculator: Corpus and pension breakup
NPS Calculator: Corpus and pension breakup
How much SIP investment is required monthly to receive a pension of ₹20,000? Assuming an average annual return of 10% from a combination of Equity (E), Corporate Bonds (C), and Government Securities (G) in the NPS, the monthly SIP required based on your age would be as follows:
Goal: Accumulate a total corpus of ₹1 crore (₹60 lakh lump sum + ₹20k monthly pension)
Age 25 (35-year tenure): Only ₹2,630/month
Age 30 (30-year tenure): Approx. ₹4,450/month
Age 35 (25-year tenure): Approx. ₹7,750/month
Age 40 (20-year tenure): Approx. ₹13,170/month
Goal: Accumulate a total corpus of ₹40 lakh (0% lump sum, 100% annuity for ₹20k monthly pension)
Age 25 (35-year tenure): Only ₹1,050/month
Age 30 (30-year tenure): Approx. ₹1,780/month
Age 35 (25-year tenure): Approx. ₹3,100/month
Age 40 (20-year tenure): Approx. ₹5,270/month
3 Major Benefits of Investing in NPS
Additional Tax Savings: Under Section 80CCD (1B) of the Income Tax Act, you get an additional tax exemption of ₹50,000 over and above the ₹1.5 lakh limit under Section 80C.
Low-Cost Product: NPS is one of the investment options with the lowest fund management fees globally, offering significant compounding benefits in the long run.
Better Returns at Lower Risk: The 'Auto Choice' and 'Active Choice' options in NPS allow you to manage asset allocation between equity and debt based on your age.
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