Rs 2 lakh pension from NPS: How much would a 30-35-40-year-old invest?

The National Pension System, or NPS, is a voluntary pension system scheme that was introduced on January 1, 2004. It was rolled out for all citizens of India on May 1, 2009. It has paved the way for pension for all.

In September 2024, NPS was extended to cover virtually everyone from birth. In other words, the parents/guardians of a child can open an NPS account for a kid and start planning for his/her pension and lump sum in old age, virtually securing the entire life financially.

NPS: Investment requirement for 30-year-old

However, let’s take the instance of ordinary men and women who suddenly wake up to the need for retirement planning after reaching 30. The target is to arrange for a monthly pension of Rs 2 lakh after 60.
The NPS calculator tells us that the person can achieve his target only if he/she invests Rs 6,500 per month. The pension payable from 60 would become Rs 2,06,112.

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NPS: Calculation for 35-year-old

Now consider a person who starts to work towards retirement planning 5 years later. He/she opens the NPS account at 35. In order to secure a pension of Rs 2 lakh, he/she has to invest Rs 10,500 a month. The pension payable will amount to Rs 2,00,869.

Calculation for 40-year-old

Suppose a 40-year-old person invest Rs 18,000 per month into his/her NPS account. The person would invest the maximum permissible age of 75 years. He/she buys annuity with 60% of the accumulated amount. In this scenario, the pension would come to Rs 2,06,727 a month.

The lumpsum that he/she would be entitled to is Rs 2.75 crore. According to the NPS calculator, the return on the investment has been assumed at 10% while the annuity stands at 6%. In fact, the assumptions of rate of return on investment and annuity are applicable for all the three sets of calculation provided above.

The point to note is that the earlier one starts to invest, the less one has to invest every month to achieve the same end. No wonder all investment strategists advise their clients to start investing early and continue for the long term to achieve the best results.