How Can I Use NPS To Make A Monthly Pension Of Rs 50,000?

Except for individuals working for the armed forces, all employees from the public, private, and even unorganised sectors are eligible for the National Pension Scheme, commonly known as the National Pension System.

The success of these investments determines the returns in the NPS programme, which invests subscriber contributions in market-linked assets including debt and equities. The current NPS rate of return on contributions is between 8 and 10%. To know more about using NPS to make a monthly pension, read on.

What Exactly Is NPS?

The National Pension System is a lovely product, despite its flaws. Beyond Rs. 50,000, people prefer to resist using the further NPS tax advantage. And the reason is because of some of its characteristics, like its lack of liquidity until an extremely old age (55–60 years), the requirement to buy an annuity, and the tax impact of annuity income. The NPS pension sum is dependent on your collected corpus and is not guaranteed, in contrast to the Old Pension Scheme. However, it is a product that offers assurance of income after retirement.

What Are The Benefits Under NPS?

Following are the benefits under NPS -

• Tax Benefits - This is yet another perk provided to users of NPS. Additionally, both the employer and employee contributions to the National Pension Scheme are eligible for tax deduction.
• Partial Withdrawals - After three years have passed since the account was first opened, partial withdrawals are permitted. The maximum amount that subscribers may remove from their contributions is 25%. Partial withdrawal will only be permitted in certain situations, such as when paying for a child's education, buying a home, or in the event of a medical emergency. In the course of the tenure, subscribers may withdraw money up to three times at intervals of five years.
• Risk Assessment - Beginning with the year the investors become 50 years old, the equity share will decrease by 2.5% annually. As a result, the risk-return equation for investors is balanced, protecting the invested funds from the unpredictability of the stock market. Unlike other fixed-income plans, this one has a better earning potential.
• Returns - Due to the fact that NPS makes investments in market-linked assets, the returns are depending on the market performance of the assets rather than having a fixed rate of interest. Through several pension funds, contributions paid to the NPS programme may be invested in four distinct asset classes, including stocks, bonds issued by governments and corporations, and alternative assets. These pension funds' returns are based on how well their equities and bonds have performed in the market.

How To Build A Corpus For A Monthly Pension of Rs 50,000?

Firstly, we would need to compute the corpus needed in reverse using the 40% annuity formula if you wish to receive a monthly pension from NPS of Rs 50,000. However, an annual rate of 6% might be chosen for convenience and the most recent rates.

If the statutory NPS corpus of 40% is all that is used for annuity purchases, then an NPS corpus of Rs 2.5 crore is required at a 6% annuity rate. The purchase of annuities will be made using 40% of this, or Rs 1 core. At 6%, this annuity would produce a yearly income of Rs. 6 lakh or a monthly pension of Rs. 50,000

This applies when just 40% of the corpus is used to purchase annuities. The remaining 60% is subsequently given to you in a payout tax-free withdrawal of Rs 1.5 crore.

Endnotes

NPS is a sound investing strategy that aids in your monetary success. However, remember that NPS is a commitment for the long run. 

Also read: Meaning And Features Of Retirement Plan You Should Be Aware Of

Understanding The Types Of Retirement Plans