At present, various schemes are being run by the government. One of them is NPS. You will also be surprised to hear about this NPS system. The National Pension System, commonly referred to as NPS, is a government initiative aimed at enhancing the financial security of individuals in their retirement years. This market-linked program allows you to build a substantial retirement fund while also securing a pension for your later years. For instance, if you begin contributing Rs 5,000 monthly at the age of 35, you might wonder how much you could accumulate by retirement and what your pension would look like.
NPS operates on a market-linked basis, meaning the returns on your contributions are influenced by market performance. There are two types of accounts available: Tier 1 and Tier 2. Anyone can open a Tier 1 account, but a Tier 2 account can only be established if you already have a Tier 1 account. Upon reaching 60, you can withdraw 60% of your total NPS investment as a lump sum, which serves as your retirement fund, while at least 40% must be converted into an annuity to provide you with a pension. The amount of pension you receive will depend on the specifics of your annuity.
If you consistently invest Rs 5,000 each month in the NPS under the Balanced Lifecycle Fund starting at age 35 and continue for 25 years, your total investment would amount to Rs 15,00,000. Assuming a 10% return, you could earn Rs 47,17,573 in interest, bringing your total corpus to Rs 62,17,573. If you allocate 40% of this total to an annuity, you would invest Rs 24,87,029. Consequently, at age 60, you could withdraw a lump sum of Rs 37,30,544 as your retirement fund. If your annuity yields a 7% return, you could receive a monthly pension of Rs 14,508.
If you begin investing in the NPS at 35 years old with an initial amount of Rs 5,000 and increase your contribution by 5% each year, you will have invested a total of Rs 28,63,626 by the time you reach 60. Assuming a return of 10%, the interest earned would amount to Rs 65,52,837. This brings your total corpus to Rs 94,16,463.
If you decide to allocate 60% of this total for your retirement fund and invest the remaining 40% in an annuity, you would receive a lump sum of Rs 56,49,878. Alternatively, if you invest 40%, which is Rs 37,66,585, in an annuity with a return of 7%, you could expect a monthly pension of Rs 21,972.
The Balanced Lifecycle Fund (BLC) diversifies investments across three key areas: equity, corporate bonds, and government bonds. In the BLC, 50% of the investment is allocated to equity until the investor turns 45. As the investor ages, the equity portion gradually decreases, reaching 35% by age 55, with a greater focus on safer investments like government bonds.
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