Understand the NPS Calculation

Know the Calculation : How much funds you will get on Retirement along with Pension

To calculate the retirement corpus and pension from the National Pension Scheme (NPS), you can use an NPS calculator, which requires inputs such as your monthly contribution, expected rate of return, and investment duration. Here’s a general outline of how to perform the calculation:

Example Calculation

Inputs

1. Monthly Contribution: ₹5,000
2. Investment Duration: 30 years (from age 30 to 60)
3. Expected Rate of Return: 10% per annum

Calculation Steps

1. Total Contributions:Total Contribution=Monthly Contribution×12×Investment DurationTotal Contribution=Monthly Contribution×12×Investment Duration=5,000×12×30=₹18,00,000=5,000×12×30=₹18,00,000
2. Future Value of Investment:
   Using the formula for the future value of a series of cash flows:A=P((1+r)n−1r)A=P(r(1+r)n−1​)where:
   • AA = future value
   • PP = monthly contribution
   • rr = monthly rate of return (annual rate / 12)
   • nn = total number of contributions (months)
   Here, r=10%12=0.00833r=1210%​=0.00833 and n=30×12=360n=30×12=360.A=5,000((1+0.00833)360−10.00833)≈₹1,75,00,000A=5,000(0.00833(1+0.00833)360−1​)≈₹1,75,00,000
3. Lump Sum Withdrawal:
   At retirement, you can withdraw up to 60% of your total corpus as a lump sum. Therefore:Lump Sum=0.60×A≈0.60×1,75,00,000≈₹1,05,00,000Lump Sum=0.60×A≈0.60×1,75,00,000≈₹1,05,00,000
4. Annuity Purchase:
   The remaining 40% must be used to purchase an annuity:Annuity Amount=0.40×A≈0.40×1,75,00,000≈₹70,00,000Annuity Amount=0.40×A≈0.40×1,75,00,000≈₹70,00,000
5. Monthly Pension:
   The monthly pension will depend on the annuity rates offered at the time of retirement. Assuming an annuity rate of 6% per annum:Monthly Pension=Annuity Amount×Annuity Rate12≈70,00,000×0.0612≈₹35,000Monthly Pension=12Annuity Amount×Annuity Rate​≈1270,00,000×0.06​≈₹35,000

Summary

• Total Contributions: ₹18,00,000
• Future Value at Retirement: ₹1,75,00,000
• Lump Sum Withdrawal (60%): ₹1,05,00,000
• Annuity Purchase (40%): ₹70,00,000
• Estimated Monthly Pension: ₹35,000

These calculations are illustrative and can vary based on actual investment performance and annuity rates at retirement. For precise calculations tailored to your specific situation, consider using an online NPS calculator, which can provide estimates based on your inputs and the current market conditions.