When we plan for retirement, we have to ensure that our monthly income in such a period should be enough to meet the routine financial obligations as well as provide for any emergencies. This is the basic expectation and requirement of any pension plan. However, while accounting for such an amount, we also have to consider the inflation at the time of retirement and taxes if any.
The inflation in not only our country but in various other nations including developed nations is at a record high. In such a scenario, having a monthly income of Rs. 50,000 will be the bare minimum needed today to survive in retirement and meet the financial goals in such a period as well. But what should be the investment amount today that can help in getting a minimum of Rs 50,000 at a later date? Investors can use the retirement calculator in this regard to understand the amount of investment needed to generate a monthly retirement income of Rs 50,000 under different investment options.
Given below is a brief analysis of the minimum investment needed for earning the desired returns under various options.
Why is a pension plan important?
Before going any further, let us first understand what pension plans really are. Pension plans or retirement plans are savings and investments plans that offer not only corpus protection upon maturity but also provide regular returns or monthly income to retirees and their families. Apart from this, investors also get tax benefits of investment in these plans and maturity benefits as well.
Pension plans can help investors be capable enough to not only meet all their financial obligations in their retirement and also enjoy their retirement life through travel, leisure activities, nurturing their hobbies, etc.
What are the top options to get Rs. 50,000 as a pension per month?
NPS stands for National Pension Scheme and is a government-backed retirement scheme. The scheme aims to provide regular income sources to retirees in their old age as well as market-linked returns. NPS is open to subscription for every citizen of the country and apart from retirement benefits, investors can also get tax benefits for their contribution. Upon maturity, investors are allowed to withdraw 60% of their corpus in the NPS account, and the balance is to be invested in a pre-approved annuity plan. The monthly pension received from these plans will be taxed in the hands of the investors as per the applicable slab rates.
Investors can use the NPS calculator available on the Fisdom website under the tab ‘Tools’ on the home page. This tool helps in calculating the expected income that can be generated out of NPS after maturity. The tool requires the investors to provide the following inputs
- The amount that can be invested in the scheme every month
- The current age of the investor
- The retirement age of the investor
- The expected rate of return
- Percentage investment in an annuity plan
- Rate of interest
Let us consider an example to understand how the NPS calculator helps in calculating the Rs. 50,000 pensions per month.
Investor A starts investing in the NPS at the age of 25 and plans to retire at the age of 60. The monthly contribution to the plan is Rs. 10,000 and the expected rate of return is 9%. The contribution to the annuity plan will be 40% and the rate of return 5%.
After putting these parameters in the Fisdom NPS Calculator, we can see that the investor will get a maturity value of Rs. 3,17,38,479 and an annuity amount will be Rs.1,26,95,391 at 40% corpus. The investor will thereafter receive Rs. 52,897 as a pension per month at the interest rate of 5% on the annuity amount.
- Mutual funds
Mutual funds have become a preferred choice of investment for the majority of investors due to the flexibility of investment as well as the opportunity to get market-linked returns. To earn Rs. 50,000 as a pension per month through mutual funds, investors can again use the Fisdom SIP calculator which is available under the tab ‘Tools’ on the home page of the website.
For example, consider investor B with a monthly SIP investment of Rs. 10,000 in a fund and an expected rate of return of 10% for a period of 30 years. At the end of 30 years, the corpus available to Investor B will be Rs. 2,27,93,253. A portion of this corpus can then be invested in any annuity plan that can generate a monthly pension of Rs. 50,000 as well as provide life insurance coverage.
- Pension plans
Pension plans are retirement plans that provide guaranteed pensions per month as well as insurance protection. These pension plans provide monthly pension payments for usually a maximum period of 35 years after retirement. Investors can use the Fisdom retirement calculator to calculate the estimated corpus needed post-retirement that can generate a monthly pension of Rs. 50,000. Thai tool is available under the tab ‘Tools’ on the home page of the website.
Investors can use the tool in the following manner. Consider Investor C investing in a pension plan at the age of 30 for another 30 years. If the expected income required per month is Rs. 50,000 at an expected rate of 5% on the corpus, they will need Rs. 1,20,00,000 at the time of retirement.
Retirement planning is a crucial part of building an investment portfolio that allows investors to have a relaxed and comfortable life post-retirement. While considering a retirement plan, it is important that investors consider all their post-retirement obligations as well as account for any emergencies. This will not only let them have a sufficient cushion other than their routine expenses but also allow room for enjoying their life.
Uncommuted pension is always taxable in the hands of the pensioner. Commuted pensions will be taxed based on the employer of the individual whether government or non-government.
The popular retirement plans include PPF, NPS, Senior Citizens Savings Scheme, Atal Pension Yojana, Pradhan Mantri Vaya Vandana Yojana, etc.
The post-retirement expenses do not significantly change if not go on the upper side. Therefore, it is prudent to analyze the current monthly income requirement and take that as a base to plan for the post-retirement income accounting for inflation and taxation.
No. Annuity plans provide guaranteed periodic payments to investor throughout their lifetime or for a specified duration. However, they do not provide life insurance cover