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NPS : 20-Year Investment Plan for a Rs 1 Lakh Monthly Pension

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NPS :A lot of folks in private companies overlook planning for their retirement, even if they’re pulling in a solid salary. The National Pension System (NPS) is a government-backed investment plan aimed at securing your retirement.

However, the number of subscribers from the private sector is under 60 lakhs. As retirement gets closer, worries about having a steady income during those non-working years can really ramp up.

NPS: Planning at 40

  • Starting age for investing: 40 years
  • Investment duration: 20 years (until age 60)
  • Monthly contribution to NPS: Rs 20,000
  • Annual top-up: 10%
  • Total investment over 20 years: Rs 1,37,46,000
  • Expected annual return: 10%
  • Final corpus: Rs 3,22,90,815 (about Rs 3.23 crore)
  • Total gain: Rs 1,85,44,815 (around Rs 1.85 crore)
  • Tax savings: Rs 41,23,800
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Next, you’ll need to purchase an annuity for your pension

  • Investment in annuity plan: 55%
  • Annuity rate: 8%
  • Pension wealth: Rs 1,61,45,408 (about Rs 1.62 crore)
  • Lump sum withdrawal: Rs 1,61,45,407 (around Rs 1.62 crore)
  • Monthly pension: Rs 1,07,636 (roughly Rs 1 lakh)

By following this investment approach, you’ll have a lump sum of Rs 1.62 crore when you retire at 60, plus a monthly pension of about Rs 1 lakh.

When discussing subscribers in the non-government sector, those who choose the LC 75, LC 50, and LC 25 options can gain significant equity exposure, especially for individuals up to 35 years old, with potential exposure reaching as high as 75 percent.

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In contrast, those who opt for an active choice can maintain a 75 percent equity exposure until they turn 50. However, by the age of 60, this exposure gradually decreases from 75 percent to 50 percent.

Therefore, if you start investing by age 35 and plan your investments wisely, you can maximize your retirement benefits.

While equity exposure helps balance the risk-return equation for investors, providing some protection against market fluctuations, it still carries inherent risks due to the nature of equity investments.

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Nevertheless, equities generally offer greater earning potential compared to fixed income options. In addition to equities, the NPS also allocates funds to corporate and government bonds.

Regarding withdrawal rules post-retirement, individuals can currently withdraw up to 60 percent of their total corpus as a lump sum, with the remaining 40 percent allocated to an annuity plan.

According to the new NPS guidelines, if the total corpus is Rs 5 lakh or less, subscribers have the option to withdraw the entire amount without the necessity of purchasing an annuity plan, and these withdrawals are tax-free.

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