In times of stock market volatility, investors are increasingly looking for options that offer long-term wealth creation along with retirement security. If your goal is a financially stress-free life after retirement, the government-backed National Pension System (NPS) can be a powerful solution.

NPS not only helps in building a large retirement corpus, but also ensures a regular monthly pension in old age.

How Can You Get a ₹1 Lakh Monthly Pension? Understand the Calculation

Let’s understand this with a practical example.

• Current age: 40 years

• Monthly investment: ₹20,000

• Investment duration: 20 years (till age 60)

• Annual step-up: 10% increase in contribution

• Expected average return: 10% per annum

With disciplined investing and annual step-up, your total investment over 20 years comes to approximately ₹1.37 crore.

Due to the power of compounding, the total interest earned can be around ₹1.85 crore, resulting in a total corpus of about ₹3.23 crore at retirement.

How Will This Corpus Be Used at Retirement?

As per NPS rules:

• 60% Lump Sum Withdrawal:
  You can withdraw around ₹1.62 crore at retirement as a tax-free lump sum.

• 40% Annuity Purchase:
  The remaining ₹1.62 crore must be used to purchase an annuity (pension plan).

• Monthly Pension:
  If the annuity provides an average return of 8%, you can receive a monthly pension of approximately ₹1 lakh for life.

(Actual pension depends on annuity rates at the time of retirement.)

New Rules and Key Benefits of NPS

NPS is not just a retirement plan—it is also an effective tax-saving instrument.

Tax Benefits (Old Tax Regime)

• Up to ₹1.5 lakh deduction under Section 80C

• Additional ₹50,000 deduction under Section 80CCD(1B)

Other Important Features

• Full withdrawal allowed if total corpus is ₹5 lakh or less

• Equity exposure up to 75% for private sector employees, allowing higher long-term growth

• Tier 1 Account: Mandatory retirement account with restrictions

• Tier 2 Account: Voluntary savings account with flexible withdrawals

Why Starting Early Matters

The biggest strength of NPS lies in long-term investing and compounding. Starting even at 35 or 40 years of age with discipline and regular contribution increases can help you achieve financial independence after retirement.

The earlier you start, the smaller the burden—and the larger the retirement benefit.