Mastering Retirement Planning: NPS Strategies for a ₹2 Lakh Monthly Pension
The National Pension System (NPS) has gained popularity as a tool for retirement planning and investment, offering various asset classes, including equities. If you’re 40 and wish to secure a monthly pension of ₹2 lakh from your NPS investment, careful planning is essential. Here’s what you need to know:
NPS Withdrawal Rule: 40% Annuity Purchase Mandatory
Upon maturity, NPS subscribers cannot withdraw the entire corpus. You must invest a maximum of 40% in an annuity plan from a life insurance company, which provides a regular pension. The remaining 60% can be withdrawn as a lump sum, but you can use a portion of this for an annuity, allowing up to 100% for annuity purchase.
How to Invest in NPS for ₹2 Lakh Monthly Pension
Assuming you’re 40 with 20 years to accumulate an NPS corpus for a ₹2 lakh monthly pension, here’s the breakdown:
- To receive ₹2 lakh per month, your NPS corpus should be ₹4.02 crore at age 60, assuming a 6% overall return.
- You must use ₹1.61 crore to purchase a 40% annuity, leaving ₹2.41 crore as a lump sum at age 60.
- If you earn 6% yearly returns from the lump sum, you’ll get ₹1,20,597 monthly.
- The annuity may also provide 6% per annum, amounting to ₹80,398 every month.
- This totals ₹2,00,995 in monthly pension from your investment.
Monthly Contribution for ₹4.02 Crore in 20 Years
To accumulate ₹4.02 crore in 20 years, starting at age 40, you should invest ₹52,500 per month, assuming an average equity exposure of 50% and above and a 10% annual return.
Variable Returns and Contribution
Returns from NPS may vary with market conditions. For instance, if you expect a higher 9% return on the lump sum during retirement, you may need a lesser corpus of ₹3.14 crore to achieve a ₹2 lakh monthly income.
Investor’s Choice: Active or Auto
Investors can choose between active and auto choice in NPS. Active choice allows flexibility in asset allocation, while auto choice offers pre-decided formulas based on risk appetite. Your allocation to equity, corporate debt, government debt, and alternative investments can be tailored to meet your financial goals.
Remember that NPS investment requires regular review, especially considering changing market conditions and risk tolerance.
