NPS Calculator: A retirement pension offers a reliable source of income during retirement, when individuals are no longer actively earning or have reduced earnings. For private-sector employees, a retirement pension is a valuable benefit, as it allows them to access programs that ensure a steady income after they retire.
The National Pension System (NPS) is one such option that supports retirement savings. This system promotes financial security by encouraging individuals to save and invest regularly over the long term.
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To calculate how much a 25-year-old needs to invest for a monthly pension of Rs 2 lakh through the NPS, we will have to consider the following factors:
1. Investment period: 35 years (from age 25 to 60).
2. Expected rate of return: Around 12% per annum during the accumulation phase.
3. Annuity rate: Around 6% at the time of retirement.
4. Annuity purchase: NPS mandates that at least 40% of the corpus be used to purchase an annuity for regular pension.
Example:
If a 25-year old person starts contributing Rs 15,500 per month towards the NPS and consistently invest until the age of 60, his retirement savings could grow significantly. Assuming an annual return of 12% on his investments, his accumulated corpus will be substantial by the time you retire. Based on these projections, his monthly pension could be around Rs 2 lakh, providing a steady and reliable income for retirement years.
This calculation works as follows:
You Age: 25 years
Monthly Investment: 15,500
Investment Period: 35 years
Expected Return on Investment: 12%
Percentage of Corpus Allocated for Pension: 40%
Expected Return from Pension: 6%
Total Investment: Rs 65.1 lakh
Returns Earned: Rs 9.42 crore
Maturity Amount: Rs 10.1 cr
Lumpsum Amount (60%) at the age of 60 years: Rs 6.04 cr
Pension Wealth (40%) at the age of 60 years – Rs 4.03 cr
Monthly Pension: Rs 2,01,353
How much a 30-year old person needs to invest for getting a monthly pension of Rs 2 lakh?
You Age: 30 years
Monthly Investment: 28,500
Investment Period: 30 years
Expected Return on Investment: 12%
Percentage of Corpus Allocated for Pension: 40%
Expected Return from Pension: 6%
Total Investment: Rs 1.03 crore
Returns Earned: Rs 9.03 cr
Maturity Amount: Rs 10.1 cr
Lumpsum Amount (60%) at the age of 60 years: Rs 6.04 cr
Pension Wealth (40%) at the age of 60 years – Rs 4.02 cr
Monthly Pension: Rs 2,01,205
Thus, a 30-year old person needs to invest Rs 28,500 for getting a monthly pension of around Rs 2 lakh.
This estimation, however, depends on maintaining consistent contributions and achieving the assumed rate of return, highlighting the potential of National Pension System as a powerful tool for long-term retirement planning.
Types of NPS Accounts:
- Tier-I Account: This is a mandatory, permanent retirement account where contributions from both the subscriber and their employer are deposited and invested according to the chosen fund or scheme.
- Tier-II Account: This is a voluntary, withdrawable account, available only if you have an active Tier-I account. You can make withdrawals from this account as needed.
Tax Benefits for Employees:
Employees contributing to the NPS are eligible for the following tax deductions on their personal contributions:
- Section 80 CCD(1): A deduction of up to 10% of salary (Basic + DA), within the overall limit of Rs 1.5 lakh under Section 80C.
- Section 80 CCD(1B): An additional deduction of up to Rs 50,000, over and above the Rs 1.5 lakh ceiling under Section 80 CCE.
An NPS calculator, thus, serves as a crucial resource for individuals aiming to strategically plan their retirement. Utilizing a National Pension Scheme calculator allows you to conveniently project your future pension and total corpus, taking into account your contributions and the duration of your investment.
When planning for retirement, one important aspect to consider is assessing your current and future expenses. This will help you determine how much income you will need in retirement, ensuring that your pension plan is aligned with your financial goals.