Retirement planning is a financial goal that every individual should start early in life. If you begin early, you don’t need to invest a hell of a lot of money regularly to build a retirement pool.
A combination of the Employees’ Provident Fund (EPF) and National Pension System (NPS) can help one to build a corpus of more than Rs 10 crore even if one invests a small amount regularly. Sounds unbelievable? Read on.
National Pension System (NPS) Calculator
The minimum age when one can start an NPS account is 18. If an 18-year-old begins to invest Rs 2,500 every month in it, he/she will be taking the first step towards a solid retirement fund.
Please note in the following calculation that the account holder does not raise the contribution by a bit for the entire tenure. He/she keeps contributing till the age of 75.
The numbers
Tenure of investment: 57 years (18-75 years)
Monthly contribution: Rs 2,500
Expected rate of return: 10% (moderate)
Monthly pension from the age of 60: Rs 1.75 lakh
Let the person buy annuity with 40% of the corpus
Expected return from annuity: 6%
Investment versus gain
The face value of the stream of Rs 2,500 investments over 684 months (57 X 12 = 684) is only Rs 17.10 lakh.
Thanks to the Herculean power of compounding, the total amount of money these small-but-steady investments will generate will be Rs 8,79,94,588 or close to Rs 8.80 crore – a gain of Rs 8,62,84,588 or more than Rs 8.62 crore.
Most important Rs 2,500 a month works out to jus about Rs 80 a day – something smaller than what that many get as pocket money from parents.
Provident Fund (PF) calculator
Suppose our financially super-conscious youth begins working at 25 years. He/she gets a basic salary of Rs 20,000.
Let’s also assume that the annual increments he/she gets is merely 6%.
We are assuming that the rate of interest EPF pays is 8.25% and the employee retires at 58 years.
The amount of money that will accumulate in the EPF account is Rs 1,57,81,003 or Rs 1.57 crore.
If you add both the corpus of NPS and EPF, the sum amounts to more than Rs 10.36 crore.
Employees’ Provident Fund and National Pension System investment: Indians are notoriously poor in retirement planning. You could utilise a combination of EPF and NPS to build a significant retirement corpus. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
