If you invest just Rs 50,000 per year in NPS, then how much NPS Corpus will you accumulate. And how much pension will you get?
A thread🧵that shows all calculations for Rs 50,000 yearly NPS investment starting from 25, 30, 35 and 40 to the age of 670 at retirement 👇👇
(1/n)
A thread🧵that shows all calculations for Rs 50,000 yearly NPS investment starting from 25, 30, 35 and 40 to the age of 670 at retirement 👇👇
(1/n)
Why Rs 50,000 per year only?
Because even though NPS is designed exclusively for retirement planning, what attracts most people to NPS is the extra Rs 50,000 tax benefit it offers via deduction under the old regime.
(2/n)
Because even though NPS is designed exclusively for retirement planning, what attracts most people to NPS is the extra Rs 50,000 tax benefit it offers via deduction under the old regime.
(2/n)
But before we do the NPS corpus and pension calculations, do understand NPS Maturity rules briefly 👇👇
(3/n)
(3/n)
- Minimum of 40% of NPS maturity corpus MUST be used to purchase an annuity. This 40% isn’t taxed. But, the annuity income generated will be taxable at the tax slab rate of the retiree.
- Remaining 60% of NPS corpus is exempt from tax and can be withdrawn as a lump sum.
(4/n)
- Remaining 60% of NPS corpus is exempt from tax and can be withdrawn as a lump sum.
(4/n)
If the retiree wants, they can even use more than 40% (and up to 100%) of the NPS corpus to purchase the annuity. In that case, the lumpsum available will decrease accordingly.
(5/n)
(5/n)
For example – one may choose to purchase the annuity plan using 65% of the NPS corpus on retirement (instead of the required minimum of 40%).
He will then only get the remaining 35% as a one-time lumpsum tax-free payout.
(6/n)
He will then only get the remaining 35% as a one-time lumpsum tax-free payout.
(6/n)
Now let us see what would be the final NPS corpus and monthly annuity income (or say sort of pension) if Rs 50,000 is invested every year in an NPS Tier-1 account till the age of 60?
(7/n)
(7/n)
A few assumptions:
- NPS Starting Age – 25 / 30 / 35 / 40
- Retirement Age – 60
- Investment Tenure – 35 / 30 / 25 / 20 years (as retirement fixed at 60)
- Annual NPS investment – Rs 50,000 only
- Does investment amount increase every year – No
(8/n)
- NPS Starting Age – 25 / 30 / 35 / 40
- Retirement Age – 60
- Investment Tenure – 35 / 30 / 25 / 20 years (as retirement fixed at 60)
- Annual NPS investment – Rs 50,000 only
- Does investment amount increase every year – No
(8/n)
- Return Assumption – 10% (assuming a balanced mix of equity and debt)
- Part of the corpus used for Annuity purchase on retirement – 40%
- Part of the corpus used for Lumpsum Payout – 60%
- Annuity Rate at the time of retirement – 6%
(9/n)
- Part of the corpus used for Annuity purchase on retirement – 40%
- Part of the corpus used for Lumpsum Payout – 60%
- Annuity Rate at the time of retirement – 6%
(9/n)
Now for the calculations...
Start at 25 and Retire at 60 (35 years tenure)
- Total Contribution – Rs 17.5 lakh
- Total NPS Corpus – Rs 1.49 crore
- 40% used for Annuity Purchase – Rs 59.6 lakh
- 60% Lumpsum Payout – Rs 89.4 lakh
- Monthly Pension from Annuity – Rs 29-30,000 (before taxes)
(10/n)
- Total Contribution – Rs 17.5 lakh
- Total NPS Corpus – Rs 1.49 crore
- 40% used for Annuity Purchase – Rs 59.6 lakh
- 60% Lumpsum Payout – Rs 89.4 lakh
- Monthly Pension from Annuity – Rs 29-30,000 (before taxes)
(10/n)
Start at 30 and Retire at 60 (30 years tenure)
- Total Contribution – Rs 15.0 lakh
- Total NPS Corpus – Rs 90.5 lakh
- 40% used for Annuity Purchase – Rs 36.2 lakh
- 60% Lumpsum Payout – Rs 54.3 lakh
- Monthly Pension from Annuity – Rs 18,000 (before taxes)
(11/n)
- Total Contribution – Rs 15.0 lakh
- Total NPS Corpus – Rs 90.5 lakh
- 40% used for Annuity Purchase – Rs 36.2 lakh
- 60% Lumpsum Payout – Rs 54.3 lakh
- Monthly Pension from Annuity – Rs 18,000 (before taxes)
(11/n)
Start at 35 and Retire at 60 (25 years tenure)
- Total Contribution – Rs 12.5 lakh
- Total NPS Corpus – Rs 54.1 lakh
- 40% used for Annuity Purchase – Rs 21.6 lakh
- 60% Lumpsum Payout –Rs 32.5 lakh
- Monthly Pension from Annuity – Rs 10-11,000 (before taxes)
(12/n)
- Total Contribution – Rs 12.5 lakh
- Total NPS Corpus – Rs 54.1 lakh
- 40% used for Annuity Purchase – Rs 21.6 lakh
- 60% Lumpsum Payout –Rs 32.5 lakh
- Monthly Pension from Annuity – Rs 10-11,000 (before taxes)
(12/n)
Start at 40 and Retire at 60 (20 years tenure)
- Total Contribution – Rs 10.0 lakh
- Total NPS Corpus – Rs 31.5 lakh
- 40% used for Annuity Purchase – Rs 12.6 lakh
- 60% Lumpsum Payout – Rs 18.9 lakh
- Monthly Pension from Annuity – Rs 6300 (before taxes)
(13/n)
- Total Contribution – Rs 10.0 lakh
- Total NPS Corpus – Rs 31.5 lakh
- 40% used for Annuity Purchase – Rs 12.6 lakh
- 60% Lumpsum Payout – Rs 18.9 lakh
- Monthly Pension from Annuity – Rs 6300 (before taxes)
(13/n)
Please note that these numbers are just indicative, based on an assumed constant average rate of return of 10% and 6% annuity, both of which may not remain constant over the years
(14/n)
(14/n)
The actual returns, final NPS pension, and final lump sum amount one gets from NPS may be higher or lower.
Also, you never know whether the 80CCD deductions will remain until your retirement or not. Chances are they are set to be retired with the old tax regime itself.
(15/n)
Also, you never know whether the 80CCD deductions will remain until your retirement or not. Chances are they are set to be retired with the old tax regime itself.
(15/n)
You can read about this more at NPS Rs 50,000 per year – Retirement Corpus & Pension Calculation
stableinvestor.com
(16/n)
stableinvestor.com
(16/n)
Or try it yourself by Downloading the (Free) Excel-based NPS Corpus & Pension Calculator
stableinvestor.com
(17/n)
stableinvestor.com
(17/n)
All said and done, National Pension System or NPS is designed to save for the post-retirement years, by making contributions during the working years.
But is it the best-suited product for retirement saving or not?
The answer isn’t that easy.
(18/n)
But is it the best-suited product for retirement saving or not?
The answer isn’t that easy.
(18/n)
It may be suitable for some people and it may not be suitable for many others.
Many people’s retirement plans are best served via simple SIP in Equity Funds, regular EPF contributions and occasional Debt Funds (for rebalancing, etc.).
(19/n)
Many people’s retirement plans are best served via simple SIP in Equity Funds, regular EPF contributions and occasional Debt Funds (for rebalancing, etc.).
(19/n)
Also, NPS generally doesn't get the attention it deserves from many investors who are quite suited for a product like NPS. I wrote about it in a @moneycontrolcom column
moneycontrol.com
(20/n)
moneycontrol.com
(20/n)
But for many others, if the money being saved monthly towards retirement is high, then Rs 50,000 NPS tax rebate doesn’t seem that attractive for them under the old regime.
The New Tax regime anyways doesn’t have any deductions for NPS or other things.
(21/n)
The New Tax regime anyways doesn’t have any deductions for NPS or other things.
(21/n)
Here is a Detailed Guide on What is NPS + How NPS Works?
You can bookmark it for later 👇👇
stableinvestor.com
(22/n)
You can bookmark it for later 👇👇
stableinvestor.com
(22/n)
That was the thread. If you found this thread 🧵useful, then do share it with others as well.
You can also retweet the link to the first tweet of this thread to spread the word. Link below 👇👇
You can also retweet the link to the first tweet of this thread to spread the word. Link below 👇👇
Loading suggestions...