NPS Calculator

Most of us are worried about our financial well-being in the future. To make sure, you maintain the same standard of living after retirement, it is important to invest for your future. There are various plans available in the market that helps you build retirement corpus. However, what would really help them is a monthly income which would help them take care of their regular expenses. Indian government in a measure to introduce financial stability to the retired citizens has a plan called National Pension System.

What is the National Pension System (NPS)?

The National Pension System (NPS) is a government-sponsored retirement savings scheme for Indian employees to receive pension after their retirement. It allows individuals to invest in a mix of equity, debt, government bonds, and corporate debt ensuring a steady income flow after retirement. Open to all citizens between 18-60. NPS offers tax benefits, flexibility in investment, and partial withdrawal

Why should you invest in National Pension System?

Since most people in India have private jobs and do not have any regular pension, they need a support system in place to provide regular income after retirement, which is exactly what National Pension system does. Having mentioned that, there are other reasons as well to invest in NPS, which are given below:

• Long-Term Retirement Savings
  NPS encourages individuals to save for retirement, promote financial stability in old age. It promotes disciplined savings through regular investment
• Tax Benefits
  Contributions to NPS if done by employee on their own qualify for tax deductions under sec 80 CCD (1) of Income Tax Act up to 10% of salary (Basic + DA). For employer’s contribution to NPS, you get Up to 10% of Basic & DA (no monetary ceiling) under 80CCD (2). This rebate is over and above the 80CCE. This helps individuals reduce their taxable income while saving for retirement.
• Flexible Investment Options
  NPS offers various investment avenues such as equities, corporate bonds, and government securities. This flexibility to choose, allows individuals to tailor their portfolios based on their risk taking ability
• Portability and Accessibility
  NPS is portable across various jobs and locations, making it convenient for individuals who change jobs frequently. This ensures continuity in retirement savings irrespective of the organization change

What is an NPS Calculator?

An NPS Calculator is an online tool that calculates the retirement corpus and pension amount you can expect upon retirement based on your present contributions, age, and the expected rate of returns.

How Does the NPS Calculator Work?

The NPS Calculator works by taking inputs like your current age, the amount you plan to contribute regularly, tenure (maturity 60 years) and the expected rate of return on your investments. It then uses this data to estimate the accumulated corpus and the monthly pension you would receive after retirement. Uses must understand that a minimum 40% of the investment must go to annuity

Formula for NPS Calculation with Example

The NPS Calculator generally uses the following formula:

NPS Corpus = P (1 + r/n) ^ nt

Where:

• P - principal sum
• r - Expected annual rate of return per annum
• n - Number of time interest compounds
• t - tenure

Assume a person invests ₹5,000 monthly from age 35 to 60 (25 years) with an expected annual return of 9%, your corpus would be approximately ₹1,47,08,922. If you choose to allocate 40% of this corpus to purchase an annuity then the amount would be ₹58, 83,569, the rest can be withdrawn as a lump sum.

Benefits of NPS Calculator

• Accurate Estimates: It provides an accurate estimate of the retirement corpus based on your inputs
• Financial Planning: Helps to plan your retirement by showing how much you would need to save for the future
• Tax Benefits: The premium you pay towards NPS is eligible for tax exemption

FAQs for NPS Calculator

1. What are the tax benefits of using the NPS Calculator?

Contributions to NPS if done by employee on their own qualify for tax deductions under sec 80 CCD (1) of Income Tax Act up to 10% of salary (Basic + DA). For employer’s contribution to NPS, you get Up to 10% of Basic & DA (no monetary ceiling) under 80CCD (2). This rebate is over and above the 80CCE. This helps individuals reduce their taxable income while saving for retirement.

2. Can I use the NPS Calculator to estimate partial withdrawals?

No, the calculator cannot be used to estimate partial withdrawals

3. Does the NPS Calculator account for different asset classes?

Yes, you can adjust the calculator to reflect different contributions to annuity and rate of annuity

4. Is the NPS Calculator reliable for long-term planning?

Yes it is ideal for long-term planning. It helps you know how much you need to build your desired corpus