New Delhi: The National Pension System (NPS) is an optional retirement savings programme that enables participants to make defined contributions to protect their future in the form of pension. NPS investments, which are backed by the government, expose you to both equities and debt securities. This voluntary contribution pension system is an EEE instrument, similar to PPF, EPF, Sukanya Samriddhi, etc., where you receive income tax exemption on maturity and the whole pension withdrawal amount.
Experts advise people to begin investing in NPS as soon as feasible in order to receive a bigger monthly income after retirement. You can determine how much you need to contribute using the NPS pension calculator in order to build a corpus that will enable you to get a pension of at least Rs 2 lakh per month.
The NPS calculator estimates that someone who begins depositing Rs 5,000 per month in NPS at age 20 will receive around Rs 1.91 crore in a lump sum maturity payment and Rs 1.27 crore in annuity value, which will be reinvested in annuities for monthly pension. Therefore, assuming a 6% annual return on an annuity valued at Rs. 1.27 crore, the monthly pension would be Rs. 63,768.
Investors also have the opportunity to deposit a lump sum of money in an SWP (systematic withdrawal plan) in order to increase their monthly income. Similar to SIP, which permits monthly investments, SWP enables monthly withdrawals, allowing investors to access their wealth. One would be able to withdraw this money for a longer length of time while still anticipating at least an 8% return by choosing SWP.
Therefore, if you are a 20-year-old NPS account holder and invest Rs 5,000 every month for 40 years in addition to investing a lump sum maturity amount of Rs 1.91 crore in SWP, you would be able to receive a pension of more than Rs 2 lakh per month ( Rs 1.43 lakh monthly from SWP and Rs 63,768 monthly from annuity). However, it should be noted that the annuity’s monthly income of Rs 63,768 will last as long as the investor lives, while the SWP’s monthly income of Rs 1.43 lakh is only guaranteed for 25 years.
