The National Pension System (NPS) is one of the most popular retirement investment plans available in the country. The NPS scheme serves two purposes: first, it helps build a substantial corpus for subscribers to receive after retirement; and second, it ensures a monthly pension.

Unlike other pension plans, such as the Employees’ Pension Scheme (EPS), where your pension is calculated based on a specific formula applied to the deposits you make throughout your career, the National Pension System (NPS) operates differently. In the NPS, you contribute a certain amount to the scheme until you retire at the age of 60. However, you can defer your exit from the scheme until the maximum age of 75.

Officially, an NPS subscriber cannot exit the scheme before turning 60 but there are exceptions, which allow the individual withdraw a part of the corpus. Early withdrawal from NPS requires the subscriber to invest at least 80% of the corpus to buy an annuity scheme which will ensure a monthly pension from the age of 60 for the employee.

Also read – NPS Calculator: Starting at 25? Here’s how much you need to invest for Rs 1.5 lakh pension post retirement?

What is the age limit for NPS investment?

Any Indian citizen aged between 18 and 70 years can invest in the NPS to ensure a stable monthly pension after retirement.

What are tax advantages for NPS subscribers?

Under the NPS, an investor can avail the maximum tax deduction of Rs 50,000 against self-contribution towards the scheme under Section 80CCD(1B) of the Income Tax Act. This tax benefit is in addition to the maximum deduction of Rs 1.5 lakh under Section 80CCD(1).

Also read – How much should you invest to have Rs 1 crore in 30 years with 8%, 10% and 12% returns?

How to ensure a monthly pension of Rs 50,000 under NPS?

To secure a monthly pension of Rs 50,000 from the NPS, you need to strategically invest. Upon maturity, you must allocate at least 40% of your accumulated corpus to an annuity scheme for pension after retirement. The remaining 60% can be as a lump sum. But in the example below, we will calculate assuming that 60% of corpus is reinvested in an annuity scheme. Here’s a breakdown:

Scenario:

Starting Age for NPS Investment: 40 years

Retirement Age: 60 years

Desired Monthly Pension: Rs 50,000

Expected Annual Return: 12% (moderate estimate)

Calculation:

Monthly Investment Required: Rs 15,200

Total Investment Duration: 20 years

Total Amount Invested Over 20 Years: Rs 36.48 lakh

Estimated Total Interest Gain: Rs 1.15 crore

Estimated Total Maturity Value After 20 Years: Rs 1.52 crore

Post-Maturity Allocation:

60% of Corpus Invested in Annuity: Rs 91.12 lakh

Lump Sum Amount Withdrawn: Rs 60.75 lakh

Resulting Monthly Pension:

Monthly Pension: Rs 50,137

By investing Rs 15,200 per month from age 40 until retirement at 60, with an expected annual return of 12%, you can ensure a monthly pension of approximately Rs 50,137.