The National Pension System (NPS) was launched by the Central Government to help individuals have an income in the form of a pension to look after themselves during retirement. It offers tax benefits on investments and withdrawals, making it an attractive retirement savings option. NPS helps individuals save for retirement by investing in different assets like stocks, government bonds, and corporate debt, aiming to provide a financially secure future. Thus, let’s find out how you can generate Rs 1 lakh pension with just Rs 5,000 monthly investment.
Also read: NPS Vatsalya: How can you generate Rs 100 crore retirement corpus for your child at 60 years of age?
What is National Pension System?
NPS is a market-linked defined contribution scheme that helps you save for your retirement. The scheme is simple, voluntary, portable, and flexible. It is one of the most efficient ways of boosting your retirement income and saving tax. It allows you to plan for a financially secure retirement with systematic savings in a planned way.
What investment options are available in NPS?
National Pension System (NPS) offers various investment options, including:
1. Equity (Stocks)
2. Corporate Bonds
3. Government Bonds
4. Alternative Investment Funds (AIFs)
NPS in India offers two choices of investment options to investors: active choice investment and auto choice investment.
Active choice investment in NPS
In the active choice investment, investors decide to invest in their choice of securities according to their risk appetite and age.
Auto choice investment in NPS
In auto choice investment, the scheme manager chooses the securities to invest on your behalf based on the age slab of the investor.
What benefits does NPS offer?
- Flexibility
- Tax benefits
- Portable account
- Dual benefit of Low Cost and Power of Compounding
- Professional fund management
What types of accounts are available in NPS?
The NPS scheme is structured into two tiers.
Tier-I account :
This is the permanent retirement account into which the regular contributions made by the subscriber and/or their employer are credited and invested as per the scheme/fund manager chosen by you.
Tier-II account :
This is a voluntary/optional withdrawable account that is allowed only when you have an active Tier I account. The withdrawals are permitted from this account as and when you require.
NPS calculation conditions
- Monthly Contribution: Rs 5,000
- Investment duration: 33 years
- Annual increase in contribution: 5 per cent
- Annuity rate of return: 6.75
NPS Calculation
We are calculating the NPS corpus for the non-government sector with:
Investment mix: 75% equity, 25% government bonds
Check the calculation below.
How much do you need to invest per month to retire with Rs 1 lakh pension?
To retire with Rs 1 lakh pension, one has to invest Rs 5,000 per month.
NPS Calculation: What will be your retirement corpus with Rs 5,000 monthly investment?
Total investment during that period will be Rs 54,73,411. The estimated capital gains will be Rs 3,90,95,955, and the estimated retirement corpus will be Rs 4,45,69,366.
NPS Calculation: What will be your lump sum withdrawal amount?
At the age of 60, you can withdraw an estimated of Rs 2,67,41,620.
NPS Calculation: What will be your monthly pension?
Your estimated monthly pension will be Rs 1,00,281.
DISCLAIMER: Not financial advice; invest at your own risk
