Planning for retirement is smart, and the National Pension Plan (NPS) provides a tax-efficient way to build your retirement wealth. In addition to flexibility in determining the allocation of contributions across various assets, NPS is entitled to an additional tax liability of Rs. I accept exemptions. . Let’s drill down specifically and see how much a 30-year-old who invests Rs 50,000 a year in NPS for tax purposes will get a pension when he turns 60.
But first understand that when NPS participants turn 60, they must have at least 40% of their accumulated corpus available to purchase an annuity from a life insurance company. The remaining 60% can be withdrawn in one lump sum and is tax-free. You also have the option of not making withdrawals and receiving a 100% pension when you retire at age 60.
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“If you continue to invest Rs 50,000 per annum over the next 30 years, your initial investment of Rs 15 million will grow to a substantial asset of Rs 1.1 billion. At this point, there are two main options to consider: Annuities. or take advantage of the lump sum withdrawal.If you choose the 100% annuity, your annuity will be higher than you would receive with the 40% option,” said Sushil Jain, CEO of PersonalCFO.in.
Here’s how it works:
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40% annuity purchase
Using 40% of the accumulated corpus to purchase an annuity guarantees a regular income after retirement. With an estimated corpus of him at Rs 1.1 billion, this equates to approximately Rs 29,455 per month. This pension guarantees a stable source of income and allows you to remain financially independent during your golden years. However, if you delay investing and start investing at age 40, your investment will decrease to Rs 35.63 crore over the next 20 years, giving you a pension of Rs 9,502 against Rs 29,455 explained above. That’s the power of compound interest.
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receive 100% pension
You can also choose to receive the full amount as an annuity at the age of 60 without receiving a lump sum. In this scenario, the monthly annuity would be approximately Rs 73,637. This gives you a higher monthly pension, but comes with the responsibility of managing your household finances in an emergency.
If you delay investing and start investing at the age of 40, your investment will decrease to Rs 35.63 crore over the next 20 years, giving you a pension of Rs 23,755 against the above Rs 73,637.
There is also an option to defer lump sum withdrawals until the age of 70. However, during this period, at least 40% of the corpus should be allocated for annuity purchases. If you retire early before you turn 60, you can only withdraw up to 20% of your NPS corpus in bulk. His remaining 80% of the corpus should be used to purchase an annuity that guarantees a regular income after retirement.
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“The NPS provides a flexible and tax-efficient means of building a retiree corpus. Investing Rs 50,000 annually over the next 30 years will accumulate a significant amount of money, which is It may not be a comfortable pension later on, so you should consider increasing your investment amount to get a higher pension,” Jain said.
Whether you choose pension stability or bulk withdrawal flexibility, NPS allows you to tailor your retirement income strategy to suit your financial goals and preferences. By planning early and making smart investment decisions, you can look forward to a secure and fulfilling retirement.
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