NPS is a long term investment. But, it provides pension income for you after retirement. Unlike the old pension scheme, there is no guarantee of pension amount in NPS. The pension amount depends on your accumulated corpus. Despite this, this product guarantees you income after retirement.
Know how to get Rs 50,000 monthly pension
Before knowing how one can get pension of Rs 50,000 per month from NPS, we have to understand the rules related to annuity in NPS.
It is important for you to know that the entire NPS Corpus will not be in your hands on maturity. You have to use at least 40 per cent of the corpus to buy annuity. From this annuity, you will get pension every month after retirement.
You can withdraw the remaining 60% of the corpus, which will be tax-free. If you want, you can use more than 40 percent of the corpus to buy annuity. You can also use 100% Corpus to buy annuity.
If you want a monthly pension of Rs 50,000 from NPS, then we have to calculate it keeping in mind the 40 percent annuity rule. There are many flavors of annuity. But, the simplest and latest annuity rate can be considered as 6 percent.
If you use 40 per cent NPS to buy an annuity, then at 6 per cent annuity rate, you need an NPS corpus of Rs 2.5 crore. 40 per cent of this i.e. Rs 1 crore will be used to buy annuity. You will get a pension of Rs 50,000 per month from this annuity at the rate of 6 per cent per annum. Rest 1.5 crore rupees will come in your hands.
If you want to use more corpus to buy annuity, then the calculation will change to:
For annuity purchase from -40% – Required NPS 2.5 Crore
-60% for annuity purchase – NPS required is 1.7 crores
-80% for annuity purchases – NPS required is Rs 1.3 crore
-100% for Annuity Purges – Required NPS 1 Crore
The above figures will change when the annuity rate changes. We have estimated the annuity rate for retirement at the age of 55-60 years at 6%.
It is important to note that annuity income is taxable. The tax rate will be as per your income slab. Hence, a slightly higher corpus would be required for a pension of Rs 50,000 after tax every month.
For monthly 50,000 pension, if we use 40 per cent corpus to buy annuity, we need NPS corpus of Rs 2.5 crore. Let us now see how this 2.5 crore NPS corpus will be prepared.
We see examples with different ages:
If the age of the person is 25 years, then he will have to invest 7-9 thousand rupees every month in NPS for the next 35 years (at 9-10 percent return). Suppose 40 percent of the corpus is used to buy an annuity, then a 35 year old person will have to invest 19-23 thousand rupees every month for the next 25 years.
If the age of the person is 45 years, then he will have to invest 59-65 thousand rupees every month for the next 15 years.
In the above example we have seen that the sooner you start investing, the less amount you have to invest in NPS every month.