Rs 1 Lakh NPS Pension: Are you 40 and want Rs 1,00,000 monthly amount by 60? Know how much you need to invest

Rs 1 Lakh NPS Monthly Pension: National Pension System (NPS) is a popular pension scheme in India, where government and private sector employees and individuals from all walks of life can contribute to create a retirement corpus and to get a monthly pension. A person with a minimum age of 18 and a maximum age of 70 years can open an NPS account and can contribute up to the age of 75.

The lump sum and the pension amount that they get at retirement depend on the individual's contributions and the NPS investment return.

One can create a sizeable corpus and get a hefty monthly pension at retirement if they are consistent in their investing and keep increasing their monthly contribution.

But what if they start their NPS journey at 40 years of age?

Can they dream of getting a Rs 1 lakh monthly pension at retirement?

Know how it may be possible?

How one can contribute to NPS

One can open an NPS account on the eNPS portal, bank app, or offline, with a minimum contribution of Rs 500.

If the subscriber is a central government employee, they need to contribute at least 10 per cent of their basic salary and dearness allowance (DA).

The government will contribute 14 per cent to the employee's NPS account.

For private sector employers, NPS contribution is voluntary.

However, if they contribute, they can claim tax benefits for their contribution under Section 36 (i) (IV) of the Income Tax Act, 1961.

NPS contribution option

NPS subscribers can choose equity and fixed interest rate options for their contribution.

The maximum equity portion that they can select is 75 per cent based on their age and risk appetite, while a minimum of 25 per cent debt selection is necessary.

For central government employees, the selection is 50 per cent equity and 50 per cent debt.

NPS retirement age

An NPS subscriber can contribute from 18 to 75 years of age, but they get a chance to withdraw up to 60 per cent lump sum amount at 60 years of age.

From the remaining 40 per cent, they need to purchase an annuity plan, which provides them a monthly pension.

If the NPS subscriber wants, they can buy an annuity from 100 per cent of their corpus.

NPS tax benefits on employee contributions

Old tax regime followers get tax deduction up to 10 per cent of their basic salary and DA under Section 80 CCD(1) within the overall ceiling of Rs 1.50 lakh under Section 80 CCE.

Other than that, old tax regime followers can get a tax deduction of up to Rs 50,000 under Section 80 CCD(1B) over and above the overall ceiling of Rs 1.50 lakh under Section 80 CCE.

NPS tax benefits on employer contribution

Old and new tax regime followers are eligible for a tax deduction up to 10 per cent of their basic salary and DA (14 per cent if such contribution is made by Central Government) contributed by the employer under Section 80 CCD(2) over the limit of Rs 1.50 lakh provided under Section 80 CCE.

How 40-year old can get Rs 1 lakh income

Scenario 1: When they withdraw 60% lump sum and purchase 40% annuity

Here, we are taking the example of a private sector employee who selects active choice as the contributory mode with 75 per cent of their contribution invested in equity and 25 per cent in debt.

The NPS subscriber may achieve the target with a Rs 33,000 step-up monthly contribution, where they will increase their contribution by 6 per cent every year.

By doing that, their overall investment will be Rs 1,45,67,094, and the estimated corpus will be Rs 4,47,19,856.

The estimated lump sum withdrawal will be Rs 2,68,31,914, while the estimated monthly pension will be Rs 1,00,620.

The equity return (pre-retirement) will be 11.96 per cent, while the annuity return (post-retirement) will be 6.75 per cent.

If you purchase annuity from 100% retirement corpus

In this case, a Rs 19,600 monthly contribution can help you get an estimated monthly pension of Rs 1,00,413. 

In 20 years, the overall investment will be Rs 47,04,000, while the estimated corpus will be Rs 1,78,51,209.

The equity return (pre-retirement) will be 11.96 per cent, while the annuity return (post-retirement) will be 6.75 per cent.

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)