The National Pension System (NPS) is a government-backed initiative designed for conservative investors aiming to accumulate a retirement fund. This program permits a maximum tax deduction of Rs 2 lakh, which includes Rs1.5 lakh under Section 80CCD (1) and an extra Rs.50,000 under Section 80CCD (1B).
This is no secret that the earlier you begin saving and investing for your retirement, the bigger the retirement corpus you would be able to accumulate. If you have just started your career, say at the age of 25, this may be the right time for you to start your retirement journey.
To ascertain the investment amount necessary for a 25-year-old to secure a monthly pension of Rs 1.5 lakh via the National Pension System (NPS), several critical factors must be considered:
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1. Investment duration: Around 40 years (from age 25 to 65).
2. Expected rate of return: Approximately 10% per annum during the accumulation phase.
3. Annuity rate: Estimated to be around 6% at the time of retirement.
4. Annuity purchase requirement: The NPS mandates that a minimum of 40% of the total corpus must be designated for the acquisition of an annuity to facilitate a regular pension.
Also Read: Is Rs 1 cr life insurance enough for your family’s future? How to calculate the ideal amount
Step-by-step analysis:
1. Monthly pension target: Rs 1.5 lakh.
2. Annual pension target: Rs 18 lakh.
3. Required annuity corpus: The necessary corpus to achieve a monthly pension of Rs 1.5 lakh at an annuity rate of 6% will be calculated using the appropriate formula.
4. Total corpus required at retirement: Since only 40% of the NPS corpus will be utilized for annuity purchase, the total corpus needed will be determined accordingly.
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