Post retirement life should be stress-free, and one of the keys to that is planning for a steady monthly income in one’s sunset years. A solid retirement corpus gives you the freedom to enjoy life without financial worries. An assured income will empower you to live with dignity and without becoming financially dependent on anyone even if you are not in the best of health.
While people tend to explore different investment options these days, it is important to ensure that a section of one’s portfolio offers guaranteed returns. Diversifying your investment portfolio across multiple instruments that offer secure returns and market-linked gains could help minimise risks.
For instance, the National Pension System (NPS) is one such tool to ensure that you receive guaranteed income post-retirement. You can also explore private pension schemes. An alternative option could be schemes like the public provident fund (PPF), which comes with many tax benefits.
National Pension System (NPS)
This is a market-linked retirement savings scheme offered by the government. While market-linked investments do not give guaranteed returns, NPS has given 8-10% returns historically. An investor can contribute a minimum of Rs 1,000 per financial year under this scheme. Income tax benefits can be claimed for deposits up to Rs 2 lakh under the scheme in a financial year.
Upon retirement, investors can withdraw 60% of their maturity corpus as a lump sum amount, which is entirely tax-free. The remaining 40% has to be utilised to purchase an annuity scheme.
Rs 30,000 Monthly Pension Via NPS
Let’s see how to plan an investment under NPS to secure a monthly pension of Rs 30,000:
Monthly investment: Rs 10,000
Time period: 30 years
Invested amount: Rs 36,00,000
Expected return: 10% p.a.
Estimated returns: Rs 1,91,93,253
Total value: Rs 2,27,93,253
Lump sum withdrawal after maturity (60%): Rs 1,36,75,951
40% corpus for annuity plans: Rs 91,17,302
At a fixed withdrawal value of Rs 30,000 per month, this amount can help an investor receive a steady income for around 25 years.
Public Provident Fund (PPF)
PPF is a government-backed savings scheme that offers long-term wealth accumulation with tax benefits. It has a 15-year lock-in period with partial withdrawal options under certain conditions. The contributions made under PPF are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. Moreover, the contributions, interest earned and maturity amount are also tax-free as it’s an exempt-exempt-exempt (EEE) scheme.
This scheme currently offers an interest rate of 7.1% per annum. An investor can deposit a maximum of Rs 1.5 lakh per financial year in a PPF account.
While the initial lock-in under PPF is 15 years, the tenure can be extended in blocks of 5 years each.
Rs 30,000 Monthly Pension Via PPF
Monthly investment: Rs 10,000
Time period: 30 years
Invested amount: Rs 36,00,000
Expected returns: 7.1% p.a.
Interest earned: Rs 83,85,155
Total value: Rs 1,19,85,155
This corpus can last for around 30 years, providing the investor a steady monthly income of Rs 30,000 per month.
Apart from these, investors with a high risk appetite can explore the mutual fund systematic withdrawal plans (SWPs) for a regular monthly income after retirement. However, equity mutual fund gains above Rs 1.25 lakh in a financial year will attract tax, which may reduce your actual returns.
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