For a financially secure and smooth retirement, there are different investment instruments that one can consider, from real estate, mutual funds and stocks, to NPS, EPF, etc. Even though all these pension instruments are the most common, according to experts, the National Pension Scheme (NPS) is one of the best investment tools for retirement planning in India.
The PFRDA (Pension Fund Regulatory and Development Authority) and the Indian government offer the National Pension Scheme (NPS). It used to be a scheme that only government employees could benefit from, but now the pension scheme has been opened to all citizens on a voluntary basis. It is a stable savings against your retirement and you will only have to invest in your NPS fund until the age of 60. The entire corpus (accumulated amount with interest) will support you once you retire.
Ajit Kumar, Chief Strategy Officer at KFintech, says, “NPS can help you have a secure future after retirement and with the right knowledge and awareness, you can receive a monthly pension of Rs 50,000.
The amount to invest according to each age group to generate a salary of 50K
The NPS investment plan should be considered if you want to save money during your working life and want to receive a fixed pension after retirement. There are two ways to invest – active and automatic choice.
Kumar explains, “There are different asset classes like stocks, corporate bonds and government securities among which one can divide one’s deposits. In the case of active choice, the investor has more control over the asset allocation and the funds, whereas, in the case of automatic choice, the manager allocates the assets on behalf of the investor. »
How to use the NPS calculator?
The NPS calculator helps you calculate your savings to receive a pension of Rs 50,000 after your retirement for life. “One can use the calculators available online and on various websites to estimate his future monthly pension,” Kumar adds.
To use the NPS calculator, you need to enter details, such as –
- Select the “Type of investment”, whether it is a monthly or an annual investment.
- The amount you wish to invest.
- Your current age, to determine the duration of the investment.
- The returns you expect from your NPS investment.
- The percentage of annuity to buy.
Kumar points out: “When his investment matures at age 60, part of the money 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 exit the plan, he/she will have to reinvest 80% in annuities. If the investor wants to withdraw before that, it cannot be lower than 80%.
He further adds, “The calculator is efficient and accurately calculates the amount one will receive after retirement. This helps to plan your finances and to have a clear idea of the amount of investment needed, in advance.
Investment tax savings
The tax benefits of NPS are different from other retirement investments. If you want to generate additional income to achieve your financial goals, experts say that the NPS Level 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 on top of that. of the foregoing and under Section 80CCD(2) government employees are eligible for a 14% payroll tax deduction and private sector employees receive 10% of their pay.
Should I opt for the Lump Sum Withdrawal in NPS?
An investor can withdraw up to 60% of the total capital but must subscribe to an annuity plan with the remaining 40%.
Kumar points out, “This is to ensure that the investor has a stable source of monthly income for the rest of his life. While one can use 60% of the corpus, the 40% minimum for the annuity plan is for his future security.
NPS is an investment program that helps you achieve your financial goals; it provides income certainty after retirement. NPS is a long-term commitment, there are tax benefits, and you can choose an investment option based on the risk and market fluctuations you are willing to handle.