Retirement Planning: Salary of Rs 1 lakh at the age of 30, how to make retirement tension free by investing in NPS..
National Pension System Calculator: The retail inflation rate was 5.1% in January 2024 and was around the same in February as well, which means that the pace of inflation remains around 5%.
That is, our expenditure on all things from food to essentials is increasing by about 5% year after year. If inflation continues to grow at this rate in the coming 20-25 years, then the work on which Rs 1 lakh is spent today, Rs 3 lakh will have to be spent.
In such a situation, it is very important to plan for retirement in time and keep inflation in mind while doing so. We will try to understand how important it is to consider inflation while planning for retirement with the help of an example.
Where to invest money to beat inflation
30-year-old Pawan (fictitious name) is a cautious investor and wants to plan for his retirement at the right time. Currently, his monthly salary is Rs 1 lakh. He estimates that after retirement, some of his expenses or responsibilities will be reduced somewhat.
Still, he wants to arrange for at least Rs 1.25 lakh per month after retirement. When he consulted a financial advisor, he advised him to invest in the Central Government's pension scheme National Pension System (NPS). This is a pension scheme through which pension and lump sum amounts can be arranged after retirement.
By investing the lump sum amount in better schemes, regular income can be obtained separately apart from pension.
Why is NPS better for retirement?
National Pension System i.e. NPS is a better option for people planning for retirement. NPS is a social security initiative of the Central Government. The age to start investing under the National Pension Scheme is 18 years. Any Indian citizen (government employee or private sector employee) can start investing in it. NRIs are also eligible for this.
After opening an account in NPS, one has to contribute for at least 20 years or till the age of 60 years. If we look at the return history of NPS, till now it has given an annual return of 9% to 12%.
Withdrawal rules after retirement
Under the current rules, NPS subscribers can withdraw up to 60% of their total corpus in lump sum after retirement. While the remaining 40% of the fund must be invested in buying an annuity for pension. However, according to your needs, more money can also be spent on buying an annuity.
Under the new guidelines of NPS, if the total corpus is Rs 5 lakh or less, then subscribers can also withdraw the entire amount without buying an annuity plan. This withdrawal is tax-free. Now let us try to know that if Rs 15 thousand is invested every month in this scheme, then how big a corpus can be created in 30 years?
That is, if you invest Rs 15,000 every month for 30 years, then the total corpus after 30 years will be around Rs 3.42 crore at the rate of 10% annual return. After retirement, you will have to buy an annuity for a pension using this fund. In the above example, we calculate how much pension can be obtained by taking a 45% lump sum withdrawal and investing 55% amount in annuity.
That is, if 55% of the total corpus is invested in an annuity plan and the annual estimated return is assumed to be 8%, then a pension of Rs 1.25 lakh can be obtained every month on an investment of Rs 1.88 crore. Apart from this, the remaining 45% deposited in NPS i.e. Rs 1.54 crore will be received as a lump sum, which can be invested in any other asset for better returns.
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