Live Rich, Retire Richer: Here’s why you must consider the NPS scheme!
POV: It’s the start of a new month. You’ve just got your salary. WoopWoop! You start spending it—a home rent here and some kirana there. Some extravagant kharcha too (let’s not talk about those yeah? 🙄).
And before you know it, you’re left with nothing in your wallet.
This happens to many of us 🫂, quite often too… We’re left wondering: “Life ahead may be filled with twists and turns. When am I going to start saving?”
“Will I have anything left for retirement?”
This moment of introspection may come with some gruesome imagery. But before you go deeper, reel yourself back.
What if there’s a neat way to continue living your life (almost) the way you do, and STILL end up saving more than enough to enjoy your twilight years?
I’m talking about the government’s National Pension System or the NPS.
NPS is a pension scheme that helps people like us get regular income post-retirement. All you have to do is contribute a small amount monthly, starting with Rs. 500!
Money contributed to this investment plan gets invested in equity (the share market), corporate debt, and government bonds by a professional fund manager. So the returns on maturity are more attractive 🤑 than stashing money in a savings account.
For the nitty-gritty of the NPS Scheme, like the documents required, etc., or if you’re already convinced and wish to open an account, you can visit this website. (Toodles 👋)
But for others who still have questions, especially: why must you start investing in this today!?
Let me give some perspective:
Suppose you’re 22 years old and you start investing Rs. 4,000 monthly in this scheme.
How much would you have when you retire?
“Can’t be that much, no??” you may think. And you’ll have that answer in a bit. ⌛
But first, let me tell you why you must consider NPS.
Save on taxes 🤩
When you start investing in NPS, you’re entitled to an income tax deduction of up to Rs. 2 lakh every year. That’s Rs. 1.5 lakh in 80C and an additional Rs. 50,000 in 80CCD (1B).
Back to our hypothetical situation where you contribute Rs. 4,000 per month in NPS. That’s Rs. 48,000 per year, which is almost the entirety of 80CCD, even if you have other deductions like LIC premium saved up for 80C.
Cultivate a healthy habit 💵🌱😌🔁
Shaking a habit that you’d consider bad and addictive is hard. Similarly, starting a new one that’s good for you in the long run, is difficult, but worth it!
Setting aside money every month may sound challenging at the beginning, but doing so will help you develop a habit of saving money, which is really kick-ass for your future self and family.
Is it a mutual fund? Is it EPF? No, it’s NPS! 🦸♀️
You may find NPS quite similar to mutual funds and the employee provident fund (EPF). Truth is, NPS is somewhere in the middle.
Here’s what I mean. While mutual funds sometimes give better returns (at higher risk), most of them charge high fund management fees (0.5%-1.5%). On the other hand, NPS’ fund management fee is up to 0.09%!
Now, to stack it against EPF, NPS gives you the control to decide how much of your investments should go into equity, and how much into debt.
Meanwhile, EPF primarily invests in debt, with only 15% allocated to equity. This could result in lesser returns (and lesser choice 🥲) compared to NPS.
Regular income after retirement, and then some 💵🫰
NPS has a unique mechanism, in that it allows for the lump sum withdrawal of 60% of the total fund at retirement (totally tax-free), and at least 40% in annuity or fixed monthly installments (subject to tax).
So not only will you have tons of cash at retirement, but you’ll also get a steady income for basically doing nothing.
This circles back to our hypothetical situation.
Now, how much would that 60% be at retirement? After all, you’re just contributing Rs. 4,000 monthly.
Answers right here 👇👇👇
Here’s the big reveal.
- If you contribute just Rs. 4,000 to this fund every month.
- Keep doing so till you retire.
- And assuming you get 10% returns on your investment (this is very much possible with NPS)
Your total corpus at maturity will be a whopping Rs. 2.08 crores!!
You’ll get 60% or Rs. 1.24 crore in a lump sum at the time of retirement.
The remaining 40%, you’ll get as a pension at Rs. 41,627 monthly!
Sounds too good to be true? It does, but it’s actually very real.
In fact, you can do the math yourself here, and apply for NPS here.
So start planning your future. But also plan that Goa trip right after. Just don’t spend as much, ok?😉
FAQs here.
