NPS Investments: How can you achieve a Rs 2 Lakh Monthly Pension in Just 20 Years? Details

NPS Investments: The National Pension System (NPS) has gained significant popularity as a retirement planning and investment tool. Alongside various other asset classes such as corporate debt and government debt, NPS provides the opportunity to invest in equities, potentially yielding appealing long-term returns when approached with prudent consideration.

There's no need for alarm even if you've started saving for retirement later in life. With thoughtful planning and consistent investments, it's still possible to secure a monthly pension of up to Rs 2 lakh through the National Pension System (NPS). The key lies in your NPS returns, which determine the corpus you can amass. To grasp how to leverage this government-backed program for a steady Rs 2 lakh monthly pension, it's crucial to familiarize yourself with certain rules.

Suppose you've recently reached the age of 40, and you have a 20-year timeframe to build a substantial corpus within the NPS. If your goal is to generate a monthly pension of Rs 2 lakh through your NPS investments, here's the required contribution you need to initiate now.

Achieve 2 Lakh monthly pension from NPS?

In order to secure a monthly pension of Rs 2 lakh, your NPS corpus must accumulate to Rs 4.02 crore by the time you reach the age of 60, assuming an estimated overall return of 6% over the 20-year period. A 40% annuity purchase is mandatory, which means you'll use Rs 1.61 crore to buy the annuity. This leaves you with a lump sum of Rs 2.41 crore at the age of 60.

To generate your monthly pension, you can invest the tax-free lump sum in a debt instrument or a combination of debt and equity if the debt returns alone are insufficient. Assuming a 6% yearly return on your lump sum amount and an annuity rate of 6% per annum, you can structure your pension plan accordingly.

If you allocate 40% of the total corpus to purchase an annuity, you can expect to receive a monthly pension of Rs 80,398 from the annuity. Additionally, with a 6% return from a debt instrument, the lump sum amount will provide an additional Rs 1,20,597 per month. Consequently, your combined monthly pension from these investments will amount to Rs 2,00,995.

How much do you need to invest monthly?

Considering you commence your NPS investments at the age of 40, the NPS calculator on the official NPS website (npstrust.org.in/nps-calculator) suggests a monthly contribution of Rs 52,500 for the next 20 years. This calculation is based on the assumption that you can maintain an average equity exposure of 50% or more, which has the potential to yield attractive returns over the long-term span of 20 years. Assuming an annual return of 10%, your total NPS investment corpus will grow to Rs 4.02 crore upon maturity.

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