NPS Calculator

NPS (National Pension Scheme) is designed specifically for the working class of individuals who wish to save for their retirement. Administered and regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA), the National Pension Scheme was launched by the government of India to secure the financial future of senior citizens post their retirement.

Under NPS, individuals can make a minimum contribution of Rs. 6000 in a financial year and can invest a minimum of Rs. 500 monthly. The contribution made towards the scheme is invested in market-linked securities such as debt or equity with an objective to gain profitable returns.

Understanding NPS

Let's take a look at the features of the NPS scheme:

• For the tier-I account, the subscribers are required to make a yearly contribution of Rs.6000 and Rs.500 as a one-time contribution. For the tier-II account, the subscribers are required to make a yearly contribution of Rs.2000 and Rs.250 one-time contribution
• On the maturity of the scheme, the account holder can withdraw 60% of the accumulated fund whereas 40% of the amount is used to buy an annuity.
• The money invested in a Tier 1 account cannot be withdrawn until the individual reaches the age of 60. However, in certain circumstances, it is possible to withdraw a portion of the principal before maturity
• A Tier 2 account is a savings account that can be opened at any time. This type of account can only be opened if the investor already has an active Tier 1 account

What is a NPS Calculator?

A National Pension Scheme (NPS) calculator is a tool that helps individuals estimate the corpus or pension they may receive upon retirement through the NPS. The NPS is a government-backed retirement savings scheme in India, designed to provide individuals with a pension after they retire.

The NPS calculator takes into account various factors such as the individual's age, contribution amount, expected investment returns, and the retirement age to calculate the projected pension amount. It considers the contributions made by the individual, as well as the employer (if applicable), and the growth of the investments over time.

By inputting these variables into the NPS calculator, individuals can get an estimate of the amount they may accumulate by the time they retire, as well as the monthly pension they can expect to receive. The calculator can also provide projections for different scenarios, allowing individuals to plan their contributions and retirement goals accordingly.

It is important to note that the NPS calculator provides an estimate and the actual pension amount may vary based on market conditions, investment performance, and other factors.

How does the NPS Calculator Work?

The online National Pension Scheme (NPS) return calculator requires an investor to provide the following information:

• Select whether they plan to make monthly or yearly contributions to the NPS.
• Enter the amount they plan to contribute on a monthly or yearly basis.
• Input the current age which should be equal to or greater than 18 years old.
• Specify the percentage of the accumulated NPS corpus they plan to withdraw upon retirement.

Based on the information provided, the NPS calculator performs the following calculations:

• Total Amount Invested and Investment Period: The calculator determines the total amount the investor has contributed to the NPS over the investment period. It also calculates the duration of the investment period.
• Wealth Gained: Using the investment amount, investment period, and assumed rate of return, the calculator estimates the accumulated wealth the investor would have at retirement.
• Monthly Pension Post-Retirement: The calculator computes the expected monthly pension amount that the investor would receive after retirement, considering the accumulated corpus and the chosen withdrawal percentage.

How to Calculate Funds Using NPS Calculator?

To calculate funds using an NPS calculator, follow these steps-

• Open the NPS calculator of your preferred platform
• Choose between monthly or yearly investment frequency
• Specify the amount to be invested per month or per year.
• Provide your current age as it affects the investment tenure until retirement at 60 years.
• The calculator assumes an asset allocation of 50% equity, 30% corporate bonds, and 20% government bonds, with a fixed income return of 7% earned from the maturity amount.
• Determine the percentage of pension wealth to be invested in an annuity plan, which represents the portion of the accumulated corpus used to purchase a pension plan.
• Note that the withdrawal cannot exceed 60% of the corpus, and the annuity plan investment must be at least 40%. If withdrawal occurs before 60 years of age, it must not be less than 80%.
• Upon entering these details, the NPS calculator estimates the following details-
  • The calculated growth in wealth based on the investments made and the assumed returns
  • The estimated amount of monthly pension to be received after retirement.
  • The projected total corpus accumulated by the time of retirement.
  • The expected withdrawal amount from the accumulated corpus upon retirement.

Let’s take an example to understand the calculation of NPS using an online NPS calculator-

Mr. AB, a 24-year-old central government employee, has enrolled in the National Pension Scheme (NPS). He has decided to contribute Rs. 2,000 per month towards the scheme. The NPS will mature when Mr. AB reaches the age of 60, allowing him to contribute for the next 36 years. He anticipates a return on investment (ROI) of 9% per annum. Additionally, he plans to purchase an annuity for 50% of the corpus and expects a 7% rate of return on the annuity.

According to the calculations provided by the NPS calculator, the status of Mr. AB’s pension account at retirement will be as follows:

Total investment: Rs. 8,64,000

Total corpus generated: Rs. 65,08,958

The calculator also generates a summary of his pension account:

Lump sum value: Rs. 32,54,479

Annuity value: Rs. 32,54,479

Expected monthly pension: Rs. 18,984

This means that over the course of 36 years, with a monthly contribution of Rs 2,000 and an assumed ROI of 9% per annum, Mr. AB’s total investment in the NPS would amount to Rs. 8,64,000. The total corpus generated by the NPS at the time of his retirement would be Rs. 65,08,958.

The summary of his pension account indicates that both the lump sum value and annuity value would be Rs. 32,54,479. Mr. AB can expect to receive a monthly pension of Rs. 18,984 post-retirement.

Bonus Read: How to Open an NPS Account?

Benefits of Using a NPS Calculator?

Using an NPS calculator offers several benefits, such as-

• Accurate Projections: The NPS calculator provides accurate projections of the accumulated corpus and expected monthly pension based on the inputted details. This helps individuals plan their retirement finances more effectively.
• Customization: The calculator allows users to input specific details such as investment amount, investment frequency, expected returns, and withdrawal percentage. This customization helps individuals tailor the calculations to their specific financial goals and preferences.
• Decision-making Tool: The NPS calculator serves as a valuable decision-making tool. By inputting different scenarios and variables, individuals can assess the impact of various factors on their pension account. This helps in making informed decisions about investment strategies and withdrawal options.
• Time-saving: Calculating the potential corpus and pension amounts manually can be time-consuming and prone to errors. The NPS calculator automates the process and provides instant results, saving time and effort for users.
• Financial Planning: Using the NPS calculator encourages individuals to engage in financial planning for their retirement. It helps in setting realistic investment goals, determining the required contribution amount, and understanding the potential outcomes.
• Comparison: The calculator enables users to compare different investment scenarios and evaluate the impact of variables such as investment amount, tenure, and expected returns. This helps in making informed decisions about optimizing the NPS investment strategy.

Who should Invest in NPS?

The following individuals can invest in NPS:

• Any Indian citizen can invest in NPS
• NRIs can also contribute to the National Pension Scheme
• It is required that the individual be between the ages of 18 and 60

Note

• Before investing in NPS, an investor must read and understand all of the terms and conditions
• The investor must submit a completed application as well as the required KYC documents

Wrapping it Up:

In conclusion, the NPS calculator is a valuable tool for individuals planning for their retirement through the National Pension Scheme. By providing accurate projections, and customization options, and serving as a decision-making tool, the calculator helps users make informed choices about their NPS investments. It saves time, promotes financial planning, and allows for comparisons of different investment scenarios. Overall, the NPS calculator empowers individuals to plan effectively, optimize their contributions, and work towards a secure and comfortable retirement.