NPS Calculator: The National Pension System (NPS) helps private sector employees plan for retirement. Starting early with NPS can build a substantial retirement fund and provide a good monthly pension. Although NPS doesn’t guarantee a fixed pension, investing early and wisely can help ensure a comfortable retirement. Your pension will depend on your chosen annuity scheme and the returns earned over time.

In this article, we will explore how much a 25-year-old needs to invest to receive a monthly pension of approximately Rs 1.5 lakh after 35 years and build a retirement corpus of around Rs 6.75 crore.

How does NPS investment work?

Under the NPS, you must use at least 40% of your accumulated corpus to buy an annuity from a Pension Fund Regulatory and Development Authority (PFRDA)-regulated Annuity Service Provider (ASP). The remaining 60% of your corpus can be withdrawn tax-free as a lump sum.

NPS has two types of accounts: Tier 1 and Tier 2. Tier 1 is your pension account, while Tier 2 is a voluntary savings account. You need to have a Tier 1 account to open a Tier 2 account. Tax benefits apply only to Tier 1 contributions.

Also read: Retirement savings: What will be the value of Rs 5 crore after 25 years?

You can claim tax exemptions up to Rs 50,000 under Section 80CCD (1B) in addition to the Rs 1.5 lakh limit under Section 80C. Additionally, 60% of the maturity amount from NPS is tax-free upon withdrawal.

Let’s figure out how much a 25-year-old should invest each month in the NPS to achieve a monthly pension of Rs 1.5 lakh by the time he turns 60. We will also look at how these investments can help build a total retirement corpus of Rs 6.75 crore.

NPS investment for a Rs 1.5 lakh monthly pension

If you start investing in the NPS at the age of 25 and aim to secure a monthly pension of around Rs 1.5 lakh by the time you turn 60, here’s what you need to know:

Monthly investment required: To achieve your pension goal, you will need to invest Rs 6,000 per month.

Rate of return: Assuming an expected annual return of 12%, your investments will grow significantly over the years.

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

Investment breakdown:

Total invested: Over the investment period, you will have invested a total of Rs 25.2 lakh.

Total maturity value: Your total corpus will grow to approximately Rs 6.74 crore by the time you retire.

Distribution of maturity value:

Annuity reinvested: Out of the total corpus, about Rs 2.7 crore will be used to purchase an annuity.

Lumpsum withdrawn: You can withdraw around Rs 4.04 crore as a lump sum.

Expected pension: With this investment strategy, you can expect a monthly pension of approximately Rs 1.48 lakh.

This breakdown shows how consistent monthly investments and a good rate of return can help you achieve a substantial retirement corpus and a comfortable pension.