How to Secure your Retirement with the National Pension System?

Written by : Knowledge Center Team

2021-02-28

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Retirement is one of the major milestones you will want to achieve. This is a goal that you work towards throughout your working life. Life changes drastically after retirement, and it can be both good and scary!

The good part is that you do not have to work and can rest and do the things you have always wanted to do. But the part that could scare you is that, post your retirement, you will not receive your income. The investments you made will come into action now.

Though the income stops, the financial needs stay the same after retirement. Thus, you not only require a lump sum amount but also a regular income to get through your expenses.

Why do you Need Money at Retirement?

Here are some of the expenses that you are most likely to incur after you retire.

a) To Carry Out Basic Expenses

Expenses won’t stop just because your work has. Daily expenses will be incurred as long as you are alive. These expenses can be the payment of bills (telephone, electricity, etc.). Kitchen expenses, house maintenance, etc.

b) For Leisure

The post-retirement phase is the best for you to take up activities that you have always wanted to do or to visit places that you could not due to work. These can be clubbed as leisure activities.

c) To Leave Legacy

As you grow older and near retirement, it is possible that you may get the blessing of a grandchild. You would want to do anything that is possible for your grandchild. To do this, you can leave a sum or a property as a legacy, provided you have accumulated a good corpus.

d) Emergency

Emergencies can strike you at any time, no matter what your age is. As you age after retirement, you will become more prone to diseases. Other emergencies, such as an accident, joint pain, or some repairs, need immediate attention. These also require cash.

How to Secure your Retirement with NPS?

To meet the expenses stated above, you need to have a proper investment plan in place as soon as you start working. One of the plans you can invest in is the National Pension Scheme, or NPS.

NPS is a savings and investment plan that helps you accumulate money for your retirement. You need to invest a certain sum regularly in your NPS account. The scheme will then invest your money in market securities. The NPS account will mature when you turn 60 years old. You can then create a pension for yourself.

1. Start Investing Early

This is the first and foremost step for any investment. The earlier you open an NPS account and start investing, the more time you will allow your investments to grow. Here are some other reasons for you to invest early.

a) You can take the benefit of compounding.
b) At a young age, you have fewer responsibilities and can thus contribute more.
c) Market linked investments perform better in the long-run.

2. Link with the Employer

If you are involved in a service and get a regular salary, then you can link your NPS account with your employer as well. This means that not only you, but your employer will also make a contribution to your account. This will increase the investment as well as help you save some tax as well. Section 80CCD (2) covers employers’ contributions.

3. Contribute 10 - 15 % of Your Total Salary

Contributing regularly is the key to being able to build a sufficient corpus by the time you retire. You need to contribute at least 10–15% of your salary to your NPS account every month.

However, if you are involved in a business, then you should contribute more than 20% of your earnings, as the risk of running a business is greater.

4. Keep Increasing Your Investments with Your Income

You can start slowly and invest small amounts, but as your income grows, you should increase the amount you invest as well. This is because there is no upper limit in NPS. An increase in the deposit should be kept in line with the increase in salary.

5. Use Life-Fund Portfolio for Better Growth

The NPS is an investment scheme that invests your money in market securities such as equity, debt, etc. It provides you with two ways in which you can manage your fund: active and auto-choice.

For a safe retirement, you can choose Auto Choice. With this option, you are not required to manage your own fund. The fund is managed based on the set options. You can select one of the three options based on your risk tolerance. These options are

a) Aggressive Life cycle fund
b) Moderate
c) Conservative

6. Allocate for Your Pension First at 60

Your NPS scheme matures when you turn 60. After maturity, you are required to invest at least 40% of your corpus towards an annuity for a pension. Thus, the first step that you should take after maturity is to allocate the amount you desire for a pension.

7. Partial Withdrawal at 60

You can still hold up to 60% of your corpus in your NPS account beyond the age of 60 as well. You can extend your investment period to up to 70 years of age. If your pension will be taken care of, if the amount is not required immediately, you can hold your NPS account, allowing it to grow further.

Where to Invest for Pension?

A pension refers to the regular payment that you receive after you retire from your job. You will need to invest at least 40% of the corpus at age 60 in a pension (annuity) scheme.

Wondering where you can invest your money? Don’t worry. Canara HSBC Life Insurance Company is there to help. It's the Pension4Life Plan.

It is an annuity plan that helps create a regular income stream so that you can easily manage your expenses.

This plan includes seven different pension options that you can choose according to your preference, with a special option for NPS subscribers.

Other Retirement and Pension Plan Options to Consider

There are other investment options available apart from the National Pension Scheme that you can consider for your retirement.

One such option is Canara HSBC Life Insurance Company’s ULIP Invest 4G.

This is also a market-linked insurance product that has a lock-in period of 5 years. After this period, you are free to withdraw without additional charges. In this plan, you have the freedom to choose your own term, premium payment duration, frequency, etc.

Here are the features of Invest 4G ULIP:

a) Four different portfolio management strategies that manage the fund on your behalf
b) Systematic and withdrawal options that can help create a regular stream of income
c) Premium funding benefit that enables the policy to continue as intended even after your death
d) Eligible for tax benefit u/s 80C and 10(10)D

Retirement is an important goal. To make sure you have enough money to take you through this phase without any issues, you need to plan way before retiring. In the Indian economic scenario, a 10-15% contribution can help you retire comfortably within 30 years. However, if you are to retire earlier than this, you will have to contribute a greater part of your income.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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