Pension Scheme – Want a Pension of Rs 60,000 Per Month? Without Govt Job ?

Pension Scheme

Retirement planning is an essential part of financial management, yet many people neglect it until it’s almost too late. Starting early can significantly increase the benefits of your retirement corpus, ensuring a comfortable life post-retirement. One such option that can help achieve a substantial pension is the National Pension System (NPS). Even if you start investing at the age of 35, you can secure a pension of up to Rs 60,000 per month. This essay explores how to invest in the NPS to achieve this goal and outlines the advantages and mechanics of this unique government scheme.

Understanding Retirement Planning

Retirement is a phase that should be meticulously planned during one’s income-earning years. The earlier you start, the greater the benefits you reap due to the power of compounding. Financial experts often emphasize the importance of early and consistent investment. It is analogous to the saying: if you sow ten seeds in times of prosperity, you will have ten seeds to eat in times of need. Despite having ample opportunities, many people’s retirement plans often go awry due to a lack of knowledge and systematic planning.

What is the National Pension System (NPS)?

The National Pension System (NPS) is a government-sponsored pension scheme aimed at providing retirement income to all citizens. It is a market-linked, defined-contribution scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NPS is designed to be accessible to the common man, ensuring a steady pension income in retirement. It offers returns on government securities, making it a safer investment compared to other market-linked options.

Key Features of NPS

1. Eligibility: The scheme is open to all Indian citizens ages of 35
2. Flexibility: Investors can choose their contribution amount and frequency.
3. Market-Linked Returns: NPS investments are subject to market risks, but historically they have offered good returns.
4. Tax Benefits: Contributions to NPS are eligible for tax deductions under Section 80C and 80CCD of the Income Tax Act.
5. Withdrawal Options: At maturity, investors can withdraw up to 60% of the corpus as a lump sum, while the remaining 40% is used to purchase an annuity for a regular pension.

Also Read….. Get Rs 30000 Monthly Pension by Investing Rs 2,650 Per Month

Achieving a Pension of Rs 60,000 per Month

The Math Behind the Investment

To secure a pension of Rs 60,000 per month starting at age 60, let’s break down the required investment strategy:

• Starting Age: 35 years
• Retirement Age: 60 years
• Investment Period: 25 years
• Monthly Contribution: Rs 22,425
• Expected Annual Return: 10%
• Total Corpus at Retirement: Rs 3,00,02,192
• Total Profit Earned: Rs 2,32,74,692
• Total Investment Made: Rs 67,27,500

Steps to Invest

1. Open an NPS Account: You can open an NPS account through online portals, banks, or authorized service providers.
2. Choose Your Pension Fund Manager (PFM): NPS offers multiple PFMs. Choose one based on their past performance and your risk appetite.
3. Select Your Investment Option: NPS offers two investment choices: Active Choice (you decide asset allocation) and Auto Choice (age-based allocation).
4. Start Contributing Regularly: Begin investing Rs 22,425 per month to accumulate the required corpus by the age of 60.

Withdrawal and Pension

When the NPS account matures at the age of 60, you can withdraw up to 60% of the total savings as a lump sum. The remaining 40% must be used to purchase an annuity, which will provide you with a regular pension. If you join NPS after the age of 60, you can withdraw after three years of joining, following the same withdrawal and annuity rules.

Factors Affecting the Pension Amount

The pension amount from NPS depends on several factors:

1. Contribution Size: Higher contributions lead to a larger corpus.
2. Investment Returns: Returns are market-linked, so they can vary.
3. Annuity Purchase: The amount used to buy an annuity at maturity influences the pension income.
4. Market Conditions: As NPS investments are market-linked, market performance impacts the final corpus.

An Example Calculation

Suppose you have accumulated a total corpus of Rs 3,00,02,192 by the age of 60. Upon maturity, you withdraw 60% (Rs 1,80,01,315) and use the remaining 40% (Rs 1,20,00,877) to buy an annuity. Assuming the annuity provides a 5% return, your monthly pension would be approximately Rs 60,000.

Advantages of NPS

1. Safety: Being a government-regulated scheme, NPS is considered safe.
2. Flexibility: You can choose your investment amount and frequency.
3. Tax Benefits: NPS contributions offer significant tax deductions.
4. Long-Term Growth: Compounding over a long period helps grow the corpus.
5. Partial Withdrawal: Up to 60% can be withdrawn as a lump sum.

Disadvantages of NPS

1. Market Risks: Being market-linked, returns are not guaranteed.
2. Lock-In Period: Funds are locked until retirement, with limited withdrawal options.
3. Mandatory Annuity Purchase: 40% of the corpus must be used to buy an annuity, which might offer lower returns compared to other investments.

Disclaimer : The information provided in this essay is for educational purposes only and should not be considered as financial advice. Investment in NPS or any other financial instrument involves risks, and it is essential to do thorough research or consult with a financial advisor before making investment decisions. The figures mentioned, including expected returns and monthly contributions, are based on assumptions and past performance, and actual results may vary.

Conclusion : The National Pension System (NPS) offers a viable pathway to securing a substantial pension income in retirement. By starting investments at the age of 35 and contributing consistently, one can achieve a pension of up to Rs 60,000 per month. While NPS offers flexibility, safety, and tax benefits, it is crucial to understand the market-linked nature of returns and the mandatory annuity purchase. With proper planning and disciplined investing, NPS can be an excellent tool for ensuring financial security in your golden years.