Young india – it is a good time to plan for retirement. read

No politician stops his speech without mentioning the fact that ‘65% of Indians are below the age of 35’. I am also talking about this section of the population. Today’s youth is tomorrow’s old aged! Imagine after 2 decades, the number of Indians who will be over 60 years ( a report says by 2050, India will have over 55% oldies)!

The average life expectancy of Indians is 65 years (worlds average is 70 years) and as per UNO (United Nation Organization), the life expectancy is expected to go up by atleast 5 years in the coming decades.

So, on the one side the life expectancy will go up and on the other hand, the urban people are getting tired of working by mid 50’s. This translates into an average life span of 20 years after retirement for an individual.

Shouldn’t we arrange a retirement corpus? Government of India has also thought of it. Thus they have introduced a program called ‘National Pension System (NPS)

Though NPS was launched in 2004, it started gaining importance in the last 2 years. Initially this scheme was introduced for government employees and later (2009) it was extended to all the citizens of India. NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA)

All citizens of India between the age of 18 and 60 years can join NPS. Like any other INVESTMENT, one has to fill in the application form with the service provider and obtain an id. In case of NPS such an id is called as Permanent Retirement Account (PRA).

The minimum contribution is Rs.6000 per year and there is no maximum amount prescribed.

Withdrawals – There are two types of accounts under NPS, namely, Tier I and Tier II. Subscripttion to Tier I can be withdrawn upon retirement, resignation (if EMPLOYED) or death and Subscripttion to Tier II can be withdrawn as and when you feel like.

Already INVESTING into EPF and PPF:  No problems, you can still go ahead and INVEST in NPS

 [ Read Also :  PPF Your INVESTMENT portfolio can’t be complete without Public Provident Fund

Return on the Investment – You will get a reasonable market return. The funds are deployed in equity, fixed income instruments, government securities, etc. The maximum asset allocation towards equity is 50%. The long term annualized return will be anywhere between 8 to 10% 

How much pension can I expect? It depends upon your age, the number of years of INVESTMENT, the amount of investment, etc. For example, Mr. Kailash 44 years, wishes to INVEST Rs.20000 per month for the next 16 years (till he attains 60 years). For his investment, on an average annual return of 9%, he will be getting around Rs.85 lakhs after 16 years. Of these funds, he can choose to withdraw 20% (Rs.17 lakhs) and appropriate the balance amount in annuity plan

Will the government also contribute anything to NPS account? No. Why should they?

Why to invest in NPS or pension funds? If the return is not great (it is in line with Bank Fixed deposit, PPF, etc), why one should invest in NPS or any other pension fund scheme? Why not invest in mutual fund or equities? According to me, there is a good reason, why one should opt for Pension fund scheme. Read tomorrow’s article 

Thought for the day

To enjoy a long, comfortable retirement, save from today.