For a financially secure and smooth retirement there are various investment vehicles to look at ranging from real estate, mutual funds and stocks to NPS, EPF etc. While these are all the most common retirement vehicles, for experts the National Pension Scheme (NPS ) one of the best investment vehicles for retirement savings in India.
PFRDA (Pension Fund Regulatory and Development Authority) and the Government of India offer the National Pension Scheme (NPS). This used to be a system only government employees could benefit from, but now the pension plan has been opened up to all citizens voluntarily. It’s a stable retirement plan and you only have to invest in your NPS fund until you turn 60. The entire corpus (accumulated amount plus interest) supports you after your retirement.
Ajit Kumar, Chief Strategy Officer, KFintech says: “NPS can help you have a secure future after retirement and with the right knowledge and awareness you could potentially get a monthly pension of Rs 50,000.”
The amount to invest for each age group to earn a salary of 50,000
Consider the NPS investment plan if you want to save money during your working life and receive a fixed retirement after retirement. There are two ways to invest – active and automatic choice.
Kumar explains: “There are different asset classes like equities, corporate bonds and government securities that you can allocate your deposits to. With active selection, the investor has more control over asset allocation and funds, while with automatic selection, the manager allocates assets on behalf of the investor.”
How to use the NPS calculator?
NPS Calculator will help you calculate your savings to get a lifetime pension of Rs 50,000 after retirement. “You can use the calculators available online and on various websites to estimate your future monthly pension,” adds Kumar.
To use the NPS calculator, you need to enter details such as:
- Choose the “type of investment”, whether a monthly or yearly investment.
- The amount you want to invest.
- Your current age to determine the duration of the investment.
- Returns you expect from your NPS investment.
- The percentage of the annuity to earn.
Kumar emphasizes: “When your investment matures at age 60, part of the amount is reinvested to provide the investor with a monthly annuity. He/she can reinvest the 40 percent, no less than that. However, if one chooses to leave the system, he/she must reinvest 80 percent in annuities. If the investor wants to get out before then, it must not be below 80 percent.”
He adds: “The calculator is efficient and accurately calculates the amount you will receive after retirement. It helps to plan your finances and have a clear idea in advance of the amount of investment required.”
Tax savings on investments
The tax benefits under NPS differ from other retirement investments. If you’re looking to generate additional income to help you meet your financial goals, experts say NPS’ Tier 1 account will be beneficial.
Kumar explains: “Under Section 80C the deduction limit is Rs 1.5 lakhs, under Section 80CCD (1B) NPS investors get an additional tax benefit of up to Rs 50,000 over the previous ones and under Section 80CCD (2) government employees can get a payroll tax deduction of Rs 14 Percent claim, and private sector employees get 10 percent of their salary.”
Should you opt for a lump sum withdrawal in NPS?
An investor can withdraw up to 60 percent of the total corpus, but is required to enter into a retirement plan with the remaining 40 percent.
Kumar stresses: “This is to ensure that the investor has a stable monthly income stream for the rest of their life. While you can use 60 percent of the corpus, at least 40 percent is used for the pension system to secure your future.
NPS is an investment plan that helps you achieve your financial goals; it provides income security after retirement. NPS is a long term commitment, there are tax benefits and you can choose an investment option based on how much market risk and volatility you are willing to accept.