For a comfortable, secure retirement and for without headaches, a monthly pension of Rs 1 lakh. Help is at hand! This easy, comprehensive guide will sow the seeds of knowledge on the National Pension System and give you a practical, actionable plan on how to get here.
Getting to Know the National Pension Scheme
The NPS offers a voluntary, defined contribution retirement savings scheme designed to enable systematic savings through one’s working life, with the aim of providing a regular stream of income after retirement. Since the NPS allows a diversified range in the investment option, it has become mostly workable for the people planning their savings for retirement.
Calculating the Required Corpus
The corpus required would have to be worked out considering various factors such as inflation, interest rates, and annuity period. Combining the factors, we get the amount which can be required to earn a monthly pension of Rs 1 lakh.
Investment Strategies for NPS
There are two basic investment strategies when investing in NPS: aggressive and conservative. Aggressive is the one in which one is investing in equity funds that give higher returns but with an added higher element of risk. In contrast, the conservative investment strategy is one where one has invested in debt funds reflecting lower but comparatively safe returns.
Importance of Starting Early
The early you start investing in NPS, the better investment it will be. The investments might grow manifolds as years pass by due to the power of compounding and can provide a good corpus for retirement.
Annuity options under NPS
With regard to annuity options, NPS presents several choices. You can either have a fixed annuity, which pays a fixed monthly pension, or a variable annuity based on the performance of your investments.
Try This: NPS Vatsalya Calculator
Factors that Affect Monthly Pension
A monthly pension gets influenced by various factors, such as inflation, interest rates, and annuity period. It’s essential to consider these factors when planning for an NPS investment.
How to Maximize Your Monthly Pension
The monthly pension can be maximized only when the investment is optimized and the associated charges are reduced to the minimum. This is achieved by selecting the right investment options and bringing down management fees.
NPS vs Other Retirement Schemes
NPS is much better than other retirement schemes such as EPF, PPF, and mutual funds due to the availability of many investment options, flexible contribution plans, and tax benefits. Therefore, it definitely becomes a much more attractive option for those who are planning for retirement.
Tax Benefits in NPS
Tax benefits in NPS can be of different types, for example under sections for deductions and exemptions. The most significant one is that contributions to NPS are allowed as a deduction under Section 80CCD and the pension received is exempt from tax.
Common Errors to be Avoided in Investment in NPS
In investment in NPS, there are a few common errors to be avoided, which include underinvestment, poor fund choice, and lack of diversification.
Try This: SSY CALCULATOR
Case Studies
Understanding the following case studies shall help one avail the benefits of NPS.
Case Study 1: Rohan is a 30-year-old software engineer who invests Rs 5,000 a month in NPS. At an average return of 8% per annum, Rohan can target a monthly pension of Rs 1 lakh after 30 years.
Case Study 1: Suppose Priya, a 40-year-old doctor, starts investing Rs 10,000 per month in NPS. If the approximate average return is 8%, after 25 years, Priya will receive an approximate monthly pension of Rs 1.5 lakhs
Frequently Asked Questions (FAQ’s)
Here are some of the frequently asked questions on NPS:
What is the minimum contribution required for NPS?
Minimum contribution requirement for NPS is Rs 500 per month.
How much pension can I expect from NPS?
It actually depends on a lot of factors, such as the quantum of your investment, the returns you earned on that investment, and the annuity period.
Will I be allowed to withdraw my NPS corpus before retirement?
The corpus amount under the NPS cannot be withdrawn before retirement. However, there is a provision for the withdrawal of up to 25% of your corpus for specified purposes, such as buying a house or funding the education of your children.
By having a look at this manual and being conscious of such mistakes, one can achieve his goal of earning a monthly pension of Rs 1 lakh from NPS. Remember to start early, optimize your investment and reduce charges for maximizing your monthly pension.
Read More: New Pension Scheme ‘NPS Vatsalya’ Launched for Minors: A Future Investment Opportunity
