Many people face financial difficulties after retirement. The situation worsens when there is no source of income. The National Pension System (NPS) is a scheme that not only provides a lump sum amount upon retirement but also ensures a regular pension.
Open an Account for Yourself or Your Spouse
You can open an NPS account in your name or your spouse’s name to ensure a steady income after the age of 60.
By investing ₹5,000 per month, you can arrange for a pension of around ₹45,000 per month for your partner after they turn 60. This way, your spouse won’t have to depend on anyone for their expenses.
What is the National Pension System?
Under this scheme, anyone aged 18 to 60 can open an account at any bank. A fixed amount is deposited every month until the age of 60. The bank provides annual interest, which currently ranges between 9% to 12% depending on the bank.
At 60, you can withdraw up to 60% of the accumulated amount as a lump sum. The remaining 40% must be used to purchase an annuity, which will provide a pension. If you choose, you can opt to convert the entire amount into a pension.
NPS: A Good Option for Pension
NPS is considered a good long-term investment option for accumulating a large fund and receiving a continuous pension post-retirement. It’s not mandatory to open the account in your name; it can be opened in the name of any family member.
The account matures when the person turns 60, and they start receiving the benefits. However, if you open the account in your spouse’s name, they will receive special benefits and can start reaping the benefits after the age of 65.
How to Secure a ₹45,000 Monthly Pension
If your spouse is 30 years old, you need to open this account immediately and invest ₹5,000 every month for the next 30 years, until they turn 60. Assuming an average annual return of 10%, you will invest ₹18 lakh over 30 years, and earn about ₹96 lakh in interest.
This will accumulate to a fund of approximately ₹1.14 crore. You can withdraw 60% of this amount, around ₹69 lakh, as a lump sum. The remaining 40%, approximately ₹45 lakh, will be used to purchase an annuity, providing a lifelong pension of ₹45,000 per month.
Tax Benefits
Investing in NPS also offers tax benefits:
- Under Section 80C of the Income Tax Act, you can avail a maximum tax exemption of ₹1.5 lakh per year.
- If you are employed, your employer can contribute up to 10% of your basic salary to NPS, which is completely tax-free under Section 80CCD(2). This benefit is in addition to the exemption under Section 80C.
- Any additional contribution you make to NPS is eligible for an additional tax exemption of up to ₹50,000 under Section 80CCD(1B).
- For those under the All Citizens Model, an additional tax exemption of up to ₹50,000 is available under Section 80C.