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NPS: I am 40. Can I get Rs 1 lakh monthly pension after retirement through NPS investment?

NPS: Retirement planning is important for everyone since everyone needs sufficient money to cover their expenses post-retirement. Since you can earn up to a certain age and need some income source to fall back on in the twilight years, it is necessary to invest money in some retirement scheme. National pension schemes (NPS) have emerged as good options for retirement investment. Citizens ages 18 to 70 can voluntarily contribute to NPS schemes and opt for the pension.

National Pension System was first started by the central government for its employees in January 2004 under the Pension Fund Regulatory and Development Authority (PFRDA).

But as the scheme grew popular, private banks and fund managers were also allowed to foray into it.

As a result, many prominent companies, such as SBI, LIC, Tata, HDFC, ICICI, Kotak, etc., started their own NPS mutual fund schemes.

Some of the top-performing NPS have given nearly 12 per cent annualised returns.

However, on average, NPS funds that perform well give returns up to 10 per cent.

“NPS offers a choice of investment options, including equity (E), corporate debt (C), and government securities (G) and alternate investment (A) – under Tier 1 of NPS. This flexibility allows individuals to tailor their investments based on their risk tolerance and financial goals and also toggle between these asset classes (4 times a year) without tax impact,” says Kurian Jose, CEO, Tata Pension Management.

“NPS is one of the best ways to save for your retirement. It helps you salt money away for the future. The money earns a market-linked return. It’s a diversified investment where your money is split into equity, corporate debt, and government debt as per your preference. And it also gives you a way to remain invested in a disciplined manner and avoid dipping into your retirement money,” says Adhil Shetty, CEO,  

Tax benefits of NPS Tier 1 NPS plans also provide tax benefits under Section 80CCD of the Income Tax Act. A taxpayer can get a deduction up to Rs 1.5 lakh under Section 80 CCD (1).

Apart from that, one can also get a deduction of up to Rs. 50,000 under Section 80 CCD (1B) exclusively for NPS investments.

“Additionally, a deduction of up to Rs. 7.5 lakh under Section 80 CCD (2) in case of deduction by employer (10% of Basic) for corporate employees under NPS is also available,” said Kurian Jose, CEO, Tata Pension Management.

How can a 40-year-old ensure a Rs 1 lakh a month pension at age 60?

The best way to start your investment in NPS is to start it at an early age.

NPS mutual funds are market-linked, but they also give you compound interest.

So, the sooner you start, the greater will be your returns at maturity.

But if you miss the early bus and realise at 40 to start your NPS journey, you still have a fair chance to get good capital gains and money to reinvest to get a Rs 1 lakh per month pension.

We will tell you how much you have to invest every month to get this pension.

Before we start, we assume you will get an annualised average return of 10 per cent on your NPS investment.

Since you are starting to invest in NPS at age 40 until you reach the retirement age of 60, you have a time period of 20 years to accumulate wealth.  

You also need to know that once you reach maturity, you are allowed to withdraw up to 60 per cent of your invested money as a lump sum in a NPS scheme.

Your NPS fund reinvested the rest of the money in an investment plan, which we assume would give you a return of 6 per cent on an annualised basis.

However, since we need to get a Rs 1 lakh pension in 20 years with a minimum investment, we will keep the condition of withdrawing just 20 per cent money on maturity.

As per our calculation, your total maturity value for a Rs 1 lakh monthly pension should be Rs 2.50 crore after 20 years of investment.

Since you will withdraw 20 per cent of the total, you will get Rs 50 lakh as a lump sum. 

The fund manager will reinvest the remaining Rs 2 crore annuity in some investment scheme, which will give a 6 per cent return, or more precisely, a Rs 1 lakh monthly pension.

To get the maturity value of Rs 2.50 crore in 20 years, you need to make a total investment of Rs 78.36 lakh in NPS in 20 years (240 months).

For that, your yearly investment should be Rs 3.92 lakh, translating into a monthly investment of Rs 32,650 and a daily investment of Rs 1,073.42.

Forty years is an age when, if you are in a good profession, work hard, and earn a good monthly salary, you may have enough to invest Rs 32,650 a month in NPS.

Saving is a good habit. Inculcating it at any age will help you carve out your future in a better way.

A financial discipline with a clear-headed approach will help you make investments even at 40 and get a monthly pension of Rs 1 lakh.

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