The National Pension System or NPS is an excellent tool crafted with the objective of pension for all. Accordingly, any Indian – resident, non-resident or overseas – can open an NPS account and start contributing.
Anyone between 18 years and 70 years can open an account and start contributing.
But then as things pan out in real life, very few persons actually begin saving in NPS at 18 or such a young age. Many of us wake up to the need for retirement planning in middle age.
Waking up in middle age
But what happens if you open an account at the age of 50? Let’s see.
Rules state that even if you start investing at 50. But obviously, if you start the journey in your youth you would generate a far bigger pension and lump sum by investing a far lesser amount every month.
Let’s check the numbers.
NPS calculator: Rs 10,000 a month
Say our late-riser investor starts investing Rs 10,000 a month in the NPS account.
The contribution continues till the account holder turns 75.
The return is expected at 10%, a moderate one considering a long-term investment.
On turning 60, the contributor becomes eligible for a monthly pension and the amount will be Rs 26,758.
Pension and lump sum at 60
It must be remembered that the contributor will be able to withdraw 60% as a lump sum at the age of 60 and will get a pension from 40% of the amount which will be retained by the NPS authorities.
The rate at which pension will be paid has been assumed at 6%.
The total corpus till 75 years will come to Rs 1.33 crore (Rs 1,33,78,904). The total nominal investment will amount to Rs 30 lakh and therefore, the gain will come to Rs 1,03,78,904.
Contributing Rs 15,000 a month
Now consider a situation when the contributor, realising that he/she has started late and doesn’t have many years for compounding to raise the pool, begins investing Rs 15,000 as a monthly contribution.
All other assumptions remaining unaltered, the pension amount will rise to Rs 40,137.
The total nominal investment amounts to 45 lakh. The total corpus would inflate to Rs 2 crore (Rs 2,00,68,356). The gain, therefore, would stand at 1,55,68,356.
Buying annuity with more than 40%
A very important point to remember is that if the contributor wants a bigger pension he/she can choose to buy pension with more than 40% of the corpus.
The National Pension System has been designed for offering monthly pension and a lump sum when a person turns 60. Even a small contribution can earn a hefty pension and a one-time payment if one starts contributing early in life. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
