Every person needs a regular income and a lump sum amount on retirement to spend the golden years of his life comfortably. But for this, planning at the right time is very important. If you do not plan at the right time and in the right way, then you may miss out on a large pension and a lump sum amount.
That is why people are often advised to invest on time. If your goal is to get a hefty pension after retirement, then the government’s National Pension System (NPS) scheme can prove to be the best for you, which can give you a pension of ₹ 1 lakh or more every month.
Important rules and conditions of NPS
NPS i.e. National Pension System, is a government scheme in which your account is portable, meaning you can operate it from any corner of the country. Under this scheme, 60 percent of the total deposit amount can be withdrawn as a lump sum after retirement.
The remaining 40 percent goes to the pension scheme, which keeps you getting regular income. Tier 1 and Tier 2 accounts can be opened under NPS. Keep in mind that a Tier 2 account can be opened only after opening a Tier 1 account.
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New rules for withdrawing money from NPS
Currently, a person can withdraw up to 60 percent of the total deposit amount in a lump sum and receive the remaining 40 percent as an annuity pension. However according to the new rules of NPS, if the total corpus is ₹5 lakh or less, subscribers can withdraw the entire amount without purchasing any annuity plan. The best part is that this withdrawal amount is also tax-free!
What should be the right age to invest in NPS
If we talk about private sector employees, then people up to the age of 35 get more equity exposure. In the active choice, you get 75% equity exposure till the age of 50. By the age of 60, this exposure falls from 5% to 50%. In such a situation, if this planning is done at the age of 35, then it can prove to be the best option, as you have a long period so that you can see your investment growing.
How to get a pension of ₹ 1 lakh
If you are planning to invest in NPS and you are 40 years old, then you can get a pension of up to ₹ 1 lakh after 20 years. However, for this, you will have to put ₹ 20,000 in NPS every month. You can also increase your investment by 10 percent every year.
If the estimated return on this is considered to be 10 percent, then after 20 years you will have a total investment of about ₹ 3 crore 23 lakh. Out of this, you will get around ₹1.85 crore as a return and your total investment will be ₹1.37 crore. The total tax savings on this will be ₹41.23 lakh. Now you have to buy an annuity for a pension.
Investment of pension wealth in an annuity plan
Annuity rate: 8%
Pension wealth: ₹1.62 crore
Lump sum withdrawal amount: ₹1.62 crore
Monthly pension: around ₹1 lakh
By planning and investing in this way, you will get a lump sum fund of ₹1.62 crore. With this, you will start getting a pension of around ₹1 lakh every month, which will make your retirement life financially secure and comfortable.
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