A Rs 500 note is the most circulated currency in India today. But if you can save even one a month, you can create a not-too-insignificant pension for you. If it sounds bizarre, you should turn to the NPS calculator which is available for free online.
But before turning to the calculation, a few words about the basics on NPS. Any adult can open an NPS account as soon as he/she turns 18. The investment can be continued till the age of 75. However, in a recent extension called NPS Vatsalya rolled out by Union Finance Minister Nirmala Sitharaman, it allows parents to begin the NPS journey soon after the birth of a child. NPS Vatslaya allows retirement planning for retirement from birth – allowing the maximum possible duration for investment.
Investing Rs 500 per month
Imagine an 18-year-old opening a National Pension System account and start investing only 500 per month. By the way, Rs 500 cannot buy more than 5 packs of a cheap cigarette brand nowadays.
Now, let’s assume 10% returns that the investor gets on his/her investments. Besides, there be a 6% return on annuity the person buys from the corpus he/she creates at the age of 60. If the person does not increase investment beyond Rs 500 a month, or Rs 6,000 a year, the amount of minimum pension that he/she will be entitled to get every month will be Rs 35,198.
Pension will rise further if…
Now if the investor buys annuity with 60% of the corpus – and not 40% as in the above calculation – he/she will get a pension of Rs 52,797.
Also, the pension will rise significantly for every Rs 100 rise in monthly contribution. If the contribution rises to Rs 600, the pension will rise to Rs 63,356 – or 20% more than in the first instance. The rider here is that one buys annuity with 60% of the corpus.
If the monthly contribution is raised to Rs 700, the pension will increase to Rs 73,915. This amount will be given every month from the age of 60. Moreover, in every case, there will be lump sum payment from the same corpus which will be built due to the long-term compounding, thanks to the long tenure possible in NPS.
