Retirement is wonderful if you have two essentials – much to live on
and much to live for” – Unknown
Retirement can evoke mixed feelings & emotions in people. A few privileged folks will have a great sense of achievement and financial stability. But many people have to grapple with a sense of void & financial insecurity. It need not be the case, and you can truly enjoy your golden years with some prudent planning. You can now design a sound retirement planning strategy with the help of the National Pension Scheme Calculator.
People in the private and unorganized sectors of the economy lack social security benefits to protect themselves in old age. So the National Pension Scheme (NPS) is an initiative of the central government to provide retirement benefits to every Indian. With the help of the scheme’s pension calculator, you can estimate the post-retirement expenses, assess the various income sources, and then put in place a proper investment strategy to achieve your retirement goals.
The National Pension Scheme (NPS)
The NPS is a retirement benefits scheme launched by the union government under the purview of the Pension Fund Regulatory & Development Authority (PFRDA). The scheme is open to the general public, who regularly contribute to a retirement fund during the working years. The PFRDA invests the money in accordance with the scheme’s investment mandate & objectives. A portion of the accumulated corpus can be withdrawn as a lump sum amount at retirement. The balance is invested in annuities to provide a regular income to the individual who has subscribed to the National Pension Scheme Online.
What is an NPS Calculator? How is it Useful?
Before you open an NPS account and start investing, you need to know the amount you require at the time of retirement to fund your post-retirement lifestyle. It involves estimating future expenses and investing suitably to build a sufficient corpus to fund those expenses. The NPS calculator tells you the amount you need to invest every month to build that retirement corpus.
- Retirement planning activity is greatly simplified by using an NPS calculator. It helps you to effectively manage your post-retirement finances.
- The calculator tells you how much you need to invest, at what rate of return, and in which asset in order to meet your financial goals.
- Using the pension plan calculator, you can compare & analyze the different schemes of NPS to select the right plan for your goals.
- Once you input the variables, the NPS calculator gives the output. There is no need to perform complex mathematical calculations.
- The NPS calculator is an online tool that gives accurate results and eliminates the scope for errors.
Using the NPS Calculator
Step 1: Enter the amount that you intend to invest every month to build a retirement corpus
Step 2: Enter your current age. It helps the NPS calculator to know the number of months/years you have until retirement.
Step 3: Choose an average rate of return you expect on your investment in the retirement fund calculator. It essentially depends on the mix of assets in the scheme.
Step 4: Choose the percentage of the corpus that you want to utilize at the time of retirement to purchase an annuity plan. This figure cannot be less than 40%
Step 5: Choose an appropriate rate of return on your annuity plan
Once you enter all the variables, the NPS calculator does the computation. It gives you the details of the total amount you have invested, the maturity amount (final corpus), and the monthly pension you will receive based on the expected annuity return.
Note: At the time of retirement, the investor in an NPS can withdraw a lump sum of up to 60% of the corpus. The balance of 40% shall be compulsorily invested in an annuity plan that will pay a regular pension. The entire corpus can be withdrawn only if the amount is less than Rs.5 lakh. Separate rules & regulations are applicable for partial withdrawals to be made before retirement.
Rajesh is a 30-year-old marketing professional who decides to invest in the NPS plan. The other details of his investment are given below.
Monthly Investment: Rs.10,000
Current Age: 30 (Retirement Age is 60)
Expected Return on Investment: 10% p.a.
Annuity Component: 40%
Expected Return on Annuity Scheme: 6%
Based on the above information, the pension calculator formula performs the calculations and gives the following output.
Total Investment; Rs,36,00,000
Total Retirement Corpus: Rs.2,27,93,254
Lump Sum Amount (60% of retirement corpus): Rs.1,36,75,952
Expected Monthly Pension: Rs.45,587
As you can see, the NPS calculator gives a snapshot of what your position will be at the time of retirement. You can use this tool and simulate various scenarios based on your situation & requirements. Note that the calculation is purely for illustration purposes and is not meant to be construed as a guarantee by NPS.
Importance of Retirement Planning
When a person retires from service, the regular income stops immediately, but the expenses continue unabated till the last breath. Most people do not have the luxury of a fixed pension after retirement. If you want to be financially independent and enjoy your sunset years, it is imperative to plan for your retirement needs while you are in active employment. A pension calculator online can help you begin the journey. Starting as early as possible gives you enough space to build a larger retirement fund with smaller contributions. You can also get many tax benefits when you invest in retirement schemes.
With increased life expectancy and advancement in medical care, people are only going to live longer in the future. They may also have to retire early due to health & job market conditions. It means that people may now need to plan for 30-40 years of post-retirement life. The best part is you have all the resources to plan for a comfortable life ahead. You just need to take a strong resolve and start investing at the earliest. The National Pension Scheme Calculator will be a great companion in your retirement planning journey!