NPS Calculator: Monthly investment you need to generate a pension of ₹2 lakh

All Indian residents have access to the National Pension System (NPS), a voluntary defined contribution pension plan governed by the Pension Fund Regulatory and Development Authority (PFRDA). In order to provide a steady income after retirement, the NPS enables individuals to make monthly pension contributions during their employment period. Equity funds, corporate bonds, government securities, and alternative investment funds are just a few of the investing alternatives provided by the NPS. Depending on their risk tolerance and retirement objectives, individuals can pick investment options. Let's use an example of how much investment one has to make each month to earn a pension of Rs. 2 lakh and get opinions industry experts.

Amit Sinha, Group Head, Social Security and Welfare, Protean eGov Technologies Limited (formerly NSDL eGovernance Infrastructure Limited)

An individual’s hard earned retirement savings may not suffice in inflationary times where the cost of commodities are increasing on a day to day basis. Therefore a running income is necessary even when a salaried working individual has retired. What provides comfort during the golden years is the convenience to walk into a bank and withdraw the monthly payment which gets credited into the individual’s bank account. In addition to the retirement savings, a monthly income is the need of the hour as it shall keep up with inflation which if not addressed in a timely manner shall erode the entire savings of the individual.

Therefore to meet long term goal, Retirement planning and wealth creation through proper financial planning are the 2 fundamental mantras that one must follow. There are various financial products available in the market today, however, one of the best bets is National Pension System or NPS.

National Pension System is promoted by the Government of India and offers both Retirement planning as well as Investment planning. It addresses both Long term as well as short term goals and is simple, transparent, comes with various investment options (eg. Equity and Debt ), provides stability, flexibility and can be invested right upto the age of 75 years. The government created this pension-cumulative investment structure to give its people stability as they age.

NPS offers an long-term saving perspective for effectively planning one’s retirement through safe and regulated market-based returns. Through NPS, one can annually save tax up to ₹2 lakh.

The NPS Prosperity Planner (NPP) (https://npp.proteantech.in) is a Personalized Planning Calculator which shall assist in understanding the Projected monthly Pension amount an NPS Subscriber may expect on maturity, based on historical data in their respective PRAN account.

Further it also provides the appropriate projections on the accelerated yearly contributions required to be invested by the Subscriber, to generate enough Corpus to be self – sufficient at the time of Retirement.

By operating NPP, the Subscriber shall understand how much pension they stand to receive based on their current contribution, as the numbers that are displayed arebased on historical data in their respective PRAN account.

Secondly, it tells them how much pension they will need based on their monthly expenses and expected inflation in future. And finally, it suggests what plan of action can be taken to resolve this. In other words, how much additional contribution they need to make to fill the deficit.

If an individual is 20 years old and is depositing around ₹8,500 per month for 40 years, the individual shall get around Rs. 4 Cr at 9% Internal rate of return (IRR) . If the individual opts to invest the entire maturity amount, he/she shall get a monthly pension of Rs. 2 lakhs( Entire Corpus is annuitized).

• Standard Pension calculator shall allow toenter amount of contributionand may provide information on Lumpsum/Annuity amount and monthly pension as per 8% returns (Conservative estimate)
• NPP shall however provide information calculated at approximately 9.1% CAGR, as per the average returns under NPS.
• Details are available on the NPS trust website(https://www.npstrust.org.in) on the returns offered by various PFMs under Tier-1 & Tier -2.

Juzer Gabajiwala- Director, Ventura Securities

As you wish to have a pension of Rs. 2 lacs per month (Rs. 24 lacs per annum), assuming that the pension return would give you 6% p.a. you need to accumulate a corpus of Rs. 4 Crores (Rs. 24 lacs p.a. / 6% p.a.) at the age of 60 (assumed as retirement age). To amass the corpus, you need to make monthly investments as follows depending on your age:

The monthly pension investment has been arrived assuming investment in 75% equity and 25% debt allocation. The returns assumed are 14% p.a. for equity and 6.5% p.a. for debt.

Rajeev Gupta, Business Head, E-Governance Services, Religare Broking Ltd

NPS is an excellent pension scheme wherein a subscriber can invest 40% to 100% of corpus for annuity on maturity at 60 years of age. The subscriber has an option to keep investing till the age of 75 years. The pension amount depends on the pension plan chosen and the cumulative yield on pension fund investments. Simple factors such as starting early, exposing to equity, and increasing your contribution as your income grows can help you draw promising retirement income.

For instance, with merely ₹600 monthly investment in NPS starting from 18 years of age, a subscriber will earn ₹17000 monthly, i.e. a little over ₹2 Lakh annually at a blended rate of return of 9%, when whole corpus is invested for annuity at the rate of 6% per annum. Herein, if the subscriber chooses to step up the contribution by 10% every year, the returns could grow twice, if not thrice, depending on the choice of funds and funds’ performance.

Aniruddha Bose, Chief Business Officer, FinEdge

We have a slightly contrarian view on the NPS, as we do not believe that it’s the best place to invest to build your retirement savings. In the NPS architecture, the equity allocation is capped - and the equity fund performances tend to lag equity mutual fund returns. Besides that, the mandated purchase of a low yielding annuity with 40% of the final accumulated corpus is a big negative as well. To generate a pension of Rs. 2 Lakhs per month, we would suggest SIP’s in small or mid cap funds that have the potential to deliver aggressive growth through compounding and rupee cost averaging over long time frames.

The actual amount you would need to save would depend on your current age, target retirement age and life expectancy. For instance, a 40-year-old planning to retire in 20 years would need to save around Rs. 21,000 in a monthly SIP for 20 years to be able to generate a fixed pension of Rs. 2 lakhs till the age of 80. However, one should ideally approach retirement planning as a much more granular exercise, considering one’s current expenses and expected inflation among other factors. Remember, Rs. 2 lakhs per month in 20 years would really be worth Rs. 65,000 or so in today’s terms!

Rajani TandaleProduct Head – Mutual Fund

As the retirement population in India continues to increase, as per the demographics of India, around 30 cr people are retiring by 2030. It has become evident that many individuals are unprepared for their golden years. The lack of proper retirement planning can lead to a host of financial and social problems, which is why it is essential to understand the importance of pensions and the benefits of the National Pension System (NPS).

Firstly, it is important to understand that retirement planning is not just about saving money. It is about creating a financial plan that takes into account one's lifestyle, healthcare needs, and other expenses that may arise during retirement. Without proper planning, individuals may find themselves struggling to make ends meet, which can lead to financial stress and even poverty.

This is where pensions come in. A pension is a regular payment that one receives after retirement, which is usually provided by the government or an employer. Pensions provide individuals with a steady stream of income during their golden years, which can help them maintain their standard of living and cover their expenses.

The National Pension System (NPS) is a government-backed pension scheme that was launched in 2004. It is a voluntary, defined contribution retirement savings scheme that aims to provide retirement income to all Indian citizens. The scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA), which is a statutory body established by the government of India.

There are several benefits of the NPS.

Low fees – NPS has the lowest fund management cost compared to other financial products.

Lock-in period - The mandatory lock-in period up to the age of 60 is one of the unique features of the NPS that helps individuals avoid making irrational investment decisions during market volatility.

Tax deductions up to Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act

Additional tax deduction of up to Rs. 50,000 under Section 80CCD(1B) of the Income Tax Act.

If you're in your mid-30s to 40s and looking to generate a monthly pension of 2 lakhs for your retirement with minimum investment today, you can consider investing in the National Pension System (NPS) Tier I. By starting with a minimum monthly investment of 50,000/- for the next 20 years, even if your investments grow at only 10% per annum, you can build a corpus of 4 crores.

However, remember that the corpus converted into an annuity cannot be withdrawn by you, and you will be eligible for a fixed interest. Assuming annuity interest rates of 6% per annum, (annuity interest rates are subject to offerings at the time of your retirement. An annuity interest rate a converting this entire corpus into an annuity plan for a monthly pension can provide you with around 2 lakhs monthly pension.

A minimum of 40% of your corpus gets compulsorily locked in your annuity plan. The annuity corpus can be withdrawn by your nominee after your death, providing financial security for your loved ones in case of any unforeseen events. Investing in the NPS early and regularly can help you achieve your retirement goals and provide financial security during your golden yearswith peace of mind. Before investing in any financial product, it's recommended that you seek advice from a financial advisor to ensure that you're making an informed decision that aligns with your financial goals and objectives.

Maitry Shah, the founder of LakshMe, the CSR initiative of the Prudent Group

To calculate the monthly investment required to generate a pension of ₹2 lakh, we need to consider various factors such as the age at which you start investing, the rate of return expected, the number of years of investment, and the annuity options available.

Assuming a retirement age of 60 years, a life expectancy of 80 years, and an expected rate of return of 8%, the monthly investment required to generate a pension of ₹2 lakh would be around ₹27,000 for 20 years. This is assuming that you opt for the default annuity option of 40% lump sum and 60% annuity payout.

Additionally, it's always a good idea to start investing early to benefit from the power of compounding and to regularly review and adjust your investment strategy to ensure that you stay on track to achieve your retirement goals.

Who should invest?

1. Self-employed individuals: a good retirement savings option for individuals without employer-sponsored pension plans.

2. Individuals in the higher tax bracket: NPS offers tax benefits under sections 80C and 80CCD of the Income Tax Act. Individuals in the higher tax bracket can benefit from these tax benefits.

Who should not invest?

1. Individuals who need liquidity: NPS has a lock-in period until the age of 60 years, and partial withdrawals are allowed only under certain circumstances.

2. Individuals who want to take higher risk: NPS primarily invests in government securities, which are low-risk investments. If an individual wants to take a higher risk, then NPS may not be the right option.

Pratik Vaidya, MD & CVO, Karma Global, a tech-enabled HR & Compliance Organisation

I have just returned from Canada where my team runs payroll for different enterprises in Canada and also does a lot of work on Canada Pension Plan (CPP) contributions.

Coming to NPS in India, it offers a good investment opportunity especially when we reach the twilight age of our life.

I guarantee that this is not only a safe investment but it is tax free and backed by the Government. At the same time, it may not be lucrative for all to go in for this scheme because it has to be such that it does suit one goals and every one’s goals may not be the same, varying from person to person depending on his needs and desires.

I must say that there are good fund managers in the market offering these schemes.

Now if you ask me between NPS and PPF, both cannot be compared as each has its own characteristics as NPS is market driven and PPF depends on the market.

Just to give you an example on how to generate 2 lakh pension per month, say you are 25 and retirement age is 60, and ready to contribute 10,000 per month leaving an investment period of 35 years. This will leave you with a pension per month post retirement of 2.00 lakhs.

What I like about this scheme is the power of compounding that makes it attractive for the investors. However, my sincere advise is that before you plunge heads on, do a thorough assessment on the NPS calculator which will calculate and show you monthly pension, wealth gained and withdrawal on retirement.

Nirav Karkera, Head of Research, Fisdom

The National Pension System (NPS) provides pension benefits that are influenced by several factors such as asset allocation, investment performance, residual period, and the annuity conversion rate. For a young investor with a 30-year investment horizon and an expected 10% Compound Annual Growth Rate (CAGR) in their asset mix, contributing approximately INR 15,000 per month could generate a monthly pension of INR 2,00,000, assuming the entire investment corpus is converted to an annuity at a rate of 7%. However, for an investor with a 15-year investment horizon, the required monthly contribution to achieve the same pension amount increases by 5x to around INR 75,000, assuming similar rate assumptions.

While investment performance is beyond an investor's control, there are two key inputs that they can maximize: investment amount and investment period. It is essential to contribute a sufficient amount and have a longer investment horizon to achieve the desired pension benefits.

CA Manish Mishra, Virtual CFO

As a retail investor looking to generate a pension of ₹2 lakh per month over a 20-year retirement period, it is advisable to invest approximately ₹68,000 per month in a diversified investment portfolio with an expected rate of return of 7% or higher. Along with traditional investment instruments like mutual funds and fixed deposits, investors should also consider investing in retirement-specific financial products such as National Pension System (NPS), Public Provident Fund (PPF), and annuity plans to achieve their retirement goals. It is recommended to consult with a financial planner to design a customized retirement plan based on individual circumstances and risk appetite.

CA Manas Chugh, expert in Investment and Taxation, Osgan Consultants

National Pension Scheme is a defined contribution retirement savings scheme for people who want to invest for a long term perspective. The Scheme has a wide attention looking into the flexibility of investment and diversification option.

Considering a person who wants to invest for 30 years, with earning a conservative 8% interest rate, he shall have a corpus of Rs. 1.97 crores which will enable him to earn a pension of Rs. 2 Lakhs per month.

As it is regulated by PFRDA, it ensures transparency and security to the investor too.