NPS Calculation: Want Rs 1 lakh monthly pension by 60? How much to invest in NPS starting at age 30 to get this amount?

NPS was introduced by the Central Government to help individuals have income in the form of a pension to take care of their retirement needs. The National Pension System scheme is structured into two tiers, Tier 1 and Tier 2. Talking about Tier 1: 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 2 is a voluntary/optional withdrawable account that is allowed only if you have an active Tier I account. The withdrawals are permitted from this account as and when you require. Now, let’s find out how you can aim for a Rs 1 lakh monthly pension through NPS. 

Understanding National Pension System

NPS is a market-linked investment scheme that helps you save for your retirement. The scheme is simple, voluntary, portable, and flexible. It allows you to plan for a financially secure retirement with systematic savings in a planned way.

What are investment options available in NPS?

Apart from Equity (Stocks), Corporate Bonds, Government Bonds, Alternative Investment Funds (AIFs), NPS in India offers two kinds of investment options to investors: active choice investment and auto choice investment. In the active choice investment, investors decide to invest in their choice of securities according to their risk appetite and age. In auto choice investment, the scheme manager chooses the securities to invest on your behalf based on the age slab of the investor. 

How to contribute to NPS?

Contributing to the National Pension System (NPS) is easy and flexible. Here’s how you can get started:

Who can contribute?

Anyone can open an NPS account, including central government employees and private sector employees.

How to open an NPS Account?

You can open an NPS account in three ways:

1. Online through the eNPS portal
2. Through your bank’s app
3. Offline

What is minimum contribution to NPS account?

The minimum contribution amount is Rs 500.

Contribution rules for Central Government employees

Central Government employees need to contribute at least 10 per cent of their basic salary and dearness allowance (DA).
The government will contribute 14 per cent to your NPS account.

Contribution rules for private sector employees

NPS contribution is voluntary for private sector employees.
If they contribute, they can claim tax benefits under Section 36 (i) (IV) of the Income Tax Act, 1961.

NPS retirement age and withdrawal rules

Here’s what you need to know about contributing to and withdrawing from your NPS account:

Contribution Period

You can contribute to NPS from 18 years of age to 75 years of age.

Withdrawal Age

You can withdraw up to 60 per cent of your NPS corpus as a lump sum amount when you reach 60 years of age.

Annuity Purchase

You need to use the remaining 40 per cent of your corpus to purchase an annuity plan, which will provide you with a monthly pension.

Option to buy annuity

If you prefer, you can use 100 per cent of your corpus to buy an annuity plan, giving you a monthly pension.

NPS calculation conditions

• Monthly Contribution: ?
• Investment duration: 30 years
• Annual increase in contribution: 5 per cent
• Annuity rate of return: 6.75

NPS Calculation

We are calculating the NPS corpus for private sector employees who select active choice as the contribution mode, along with 75 per cent of their contribution invested in equity, and 25 per cent in debt. 

How much do you need to invest to retire with Rs 1 lakh pension?

If you are planning to invest in NPS at the age of 30 and are aiming for a Rs 1 lakh monthly pension. You can start your investment with Rs 10,000 with an annual step-up of 5 per cent. Which means your investment amount will increase automatically annually by a set percent or amount, which is 5 per cent. 

NPS Calculation: What will be your retirement corpus by age 60?

Total investment during that period will be Rs 79,72,662. The estimated capital gains will be Rs 3,91,42,201, and the estimated retirement corpus will be Rs 4,71,14,863.

NPS Calculation: What will be your lump sum withdrawal amount?

You can withdraw up to 60 per cent of your NPS corpus as a lump sum amount when you reach 60 years of age. You can withdraw an estimated of Rs 2,82,68,918.

NPS Calculation: What will be your monthly pension?

You need to use the remaining 40 per cent of your corpus to purchase an annuity plan, which will provide you with a monthly pension. At a 6.75 per cent annuity rate of return, your estimated monthly pension will be Rs 1,06,008.

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning)