The Money You are Investing in NPS for Retirement, Will it be Enough for Your Old Age? Understand Through Calculations

Retirement planning is very important for everyone. For this, some people invest money in PPF, some in EPF and some people choose NPS. There are many people who do retirement planning through FD only. However, if we look at all these tools, the highest returns are available in NPS, but it matures only after you are 60 years of age. So if you have decided that you want to withdraw that money only after retirement, then NPS is a much better option. Now the question arises that how much money should you invest every month? You also have to think about how much money you will need after retirement. Let us understand how much money you will need at retirement.

First understand how much money will be needed on retirement?

This may be different for everyone. Let us assume that the current salary of a 30 year old person is Rs 50 thousand. In a family of two people i.e. husband and wife, you would be spending around Rs 25 thousand every month, whereas Rs 25 thousand can be left with you. Now, if you proceed with this as a value, then you will invest in NPS for the next 30 years. Let us assume that inflation will increase at the rate of 3-4 percent every year. According to this, if compounding interest is calculated on Rs 25 thousand at the rate of 3 percent in 30 years, it will come to around Rs 60 thousand. That means you will need a pension of at least Rs 60 thousand per month upon retirement. Keep in mind that this formula is only for those people whose age is 30 years and salary is 50 thousand, out of which 25 thousand is used for their household expenses.

Will need at least Rs 1.5 crore on retirement

The interest rates on savings keep increasing and decreasing continuously. Sometimes it becomes 5 percent and now it even reaches 7-8 percent. Let’s assume that inflation will increase by 3-4 percent every year. In such a situation, if you want Rs 60 thousand every month, then at the age of 60 you will need a retirement corpus of about Rs 1.5 crore. In such a situation, you will be able to get a pension of around Rs 62,500 every month. Now the question is how much money you will have to deposit every month for this.

Invest Rs 7500 every month

If you are 30 years old then you will have to invest Rs 7500 every month to accumulate Rs 1.5 crore by the age of 60. Let’s assume that inflation will increase by 3-4 percent every year. You can easily get 10 percent interest by investing in NPS. If you deposit around Rs 7500 every month in NPS, then in 30 years you will invest a total of Rs 27 lakh. You will get interest of around Rs 1.43 crore on this. In this way, your total amount on maturity will be around Rs 1.7 crore. In such a situation, you will be able to get a pension of about Rs 70 thousand every month. Keep in mind, if your age is more than 30 years, then increase your investment every month accordingly, so that you can get more money till retirement.

Also keep this in mind

When you retire, you will have two options. Or you can invest all your money in an annuity plan and take pension from it. Or you can withdraw 60 percent of the amount and make an annuity plan with the remaining 40 percent. At retirement, at least 40 percent of NPS must be invested in an annuity plan. We are assuming that you will invest all the money in an annuity plan on maturity. If you do not want to invest all the money in annuity, then you can change your calculation accordingly.

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