How to secure your retirement with the National Pension System (NPS)?

How to secure your retirement with the National Pension System (NPS)

Retirement planning is a crucial financial goal towards which you must begin investing early. Here’s where NPS comes in handy. The national pension system (NPS) is a vital retirement scheme introduced by the Indian government to facilitate adequate financial help after retirement. Read on to know all about NPS and how this financial instrument can help you in securing your life after retirement.

What is NPS?

NPS is a retirement scheme designed to offer you a constant flow of income post retirement. In case you are over 18 years of age, you can open NPS account online or offline. You can invest in NPS systematically as per your cash inflow to build an adequate retirement corpus over long term. After you approach retirement, you can withdraw a specific amount of your overall investment in NPS. The leftover investment is available as monthly payouts. Note that every Indian citizen (including NRI & OCI) can become a subscriber of NPS and contribute to making the most out of NPS benefits.

What are the benefits of opening an NPS account?

Assured pension for life

After retirement, while there would be no flow of income, your regular expenses would continue. Moreover, if inflation is factored in, expenses would be more than what you are incurring currently. By investing in NPS, you can continue getting a monthly pension for the entire retirement timeframe.

Once you reach the age of 60, your NPS investment matures wherein 60 per cent of your retirement fund is transferred to your bank account. Also, you get a monthly pension equaling 40 per cent of the corpus. It infers, the higher your corpus, the higher would be your monthly pension. Remember that the only means to form an adequate corpus is by beginning your NPS investment early.

Your dependents can fall back on this investment in your absence

Though a huge retirement corpus might offer mental peace, you may still fret regarding your dependents post your demise. Moreover, you might even have various obligations and family commitments to be met. Here’s where you could select an NPS scheme of your preference where a specific amount would be paid to your dependents and spouse even after your death. This plan might continue till your dependents are alive.

Tax deduction beyond Section 80 C

Section 80 CCD (1) offers a maximum tax deduction of Rs 1.50 lakh per year on NPS. Moreover, a new subsection 1B has even been introduced, which offers an additional tax deduction of Rs 50,000 on contributions performed by individual taxpayers. Note that the additional tax deduction equaling Rs 50,000 as per Section 80 CCD (1B) is over and above the deduction of Rs 1.50 lakh available on Section 80 CCD (1). Thus, the highest deduction offered on NPS is Rs 2 lakh.

Ending note

To sum it up, with advantages such as flexibility in investment, tax benefits of over and above Section 80 C, pension guarantee and others, the NPS option comes across as a crucial retirement instrument. However, note that to open NPS, you may require incurring NPS account opening charges of up to Rs 400. It is an amount to be paid when making your first NPS investment.

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