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NPS Calculator for Retirement Planning – Tier 1 vs Tier 2 Accounts
Jason 0 Comments Retirement Planning
Press the bell icon while subscribing to get the notifications of the latest finance videos. Hello my name is Mukul And welcome to the Asset Yogi. Friends in this video we will try to understand the calculation of the National Pension Scheme If you invest 5000 to 10,000 rupees invest 5000 to 10,000 rupees per month in the National Pension scheme So what is the final amount you will get at the time of retirement. We will discuss Lump Sum and at the same time, We will also about how much monthly pension you can get, I have already done two videos related to this. In the first video, we saw the details of NPS, its benefits, how to open an NPS account, you should watch that video, the link is in the description below.
In the second video, we have discussed NPS tax benefits. Along with the retirement planning program product, NPS also provides you with tax benefits and those tax benefits are very good so watch that video too. In this video, we will know more about tier 1 account and tier 2 account. How your money is invested Where pension fund managers invest your money Either the manager invests your money in equity, bonds, or government securities. So keep watching the video.
Music Firstly we will talk about tier 1 account, If you want to open your account in the National pension scheme If you want monthly income on your retirement So firstly, you have to open a tier 1 account. Tier 1 account is a pure retirement planning product We can also call it a pension plan Here you can invest money every month or one time in a year No matter what amount you have you can invest in it anytime Now how do you will invest in it ? There is a website of NPS trust there you will get all the links you can invest your money in their online services There is an app available for NPS you can also make transactions through it In the previous video, many people asked a questions can we invest if we are self-employed? In NPS along with Central Government employees, State Government employees and cooperative employees can also invest Self-employed people can also invest their money and a Businessman can also invest There is only an age criterion, if you are above 18 years you can invest Anyone between The age group of 18 to 65 years can invest in NPS.
What is a major benefit of NPS here you will get good returns because Because you get the equity component and the second advantage is its tax benefits.
How does it compare with the rest of the investment? Like PPF , Employees Provident Fund or mutual fund I will discuss it in the next video, in this video, we will see how the money is invested We will also look NPS calculator and what will be the Corpus amount at the retirement And how much monthly pension you can get. Let’s discuss how your money is invested When you open an NPS account then the money you invest in it Let’s say you invest 8000 to 10,000 per month Your money is managed by the pension fund manager Who are pension fund managers, I told you this in the previous video you can watch it.
When you open your NPS account, you choose where you want to invest. Here you get three options for investment.
The first is equity. Equity means your money is invested in the share market you can assume that there is high risk and high returns The risk is high in the share market but if we think for the long term. Because we are going to invest for 25 to 30 years. The second type of investment is cooperative bonds. Here we have moderate risk and moderate returns.
Here you will get 9 to 10% returns indirectly you are giving money to a particular company. And that company is using your money in its business but the company is giving you fixed returns In equity, no one promises fixed returns, If you remember, I said in the video of Equity and Debt. Equity returns are never promised. In the cooperative bond, you are promised fixed rate of returns. The third type of investment is government securities.
Government security is very safe because there is support from the government. Here you can expect returns up to 7 to 8% Now I am talking about today’s expected returns in the future it can change. You can decide how much money to invest in which type of investment and it’s called active choice. That means you can also decide Let say I want to invest 50% in equity, 25% cooperative in bond and 25% in government securities There is a restriction you can not invest 100% of your money in equity. The maximum you can invest is 75% of your money in equity.
And if you are an aggressive investor, you can invest the remaining 25% in cooperative bonds and government securities. But if you want moderate results and you don’t want to take the high risk so accordingly you can decide your percentage, for example, you can invest 50% in equity, 25% in cooperative bonds, and 25% in government securities.
If you don’t want to do asset allocation by yourself, so that you get auto choice According to your age, it is decided that how much percent you should invest in equity and how much percent should be invested in debt ie bonds and government securities. And it’s not like that once you selected these choices So you have to stick with these choices for the next 30 to 35 years you can change them and you can also change your pension fund manager once a year. And you can change your asset allocation twice a year.
We talked about how our money is invested. Now let’s talk about how much money we will get at retirement? You have 3 options in retirement, first, you can continue this investment till 70 years Another option is that you can defer the withdrawal, you won’t have to invest extra after retirement you can defer it till the age of 70 years At age 70 you will get the interest and of extra 10 years too as a lump sum amount Or you can get its pension also The third main option is the exit from NPS at the time of retirement So when you will retire at the age of 60, then at That time you will get the option that how much money you want to take in a lump sum and how much money you like to take in monthly pension.
There is a restriction, you can take a maximum of 60% of the amount in a lump sum. You have to take a minimum of 40% in the form of a pension.
So we can say that from 40% to 100%, you can convert the final amount of corpus in the form of a monthly pension. How does the monthly pension operate? Let say your final amount is one crore So these one crores are given to an insurance company They give you an annuity plan and they give you 5 to 6% returns on these one crore. And you start getting a pension for a lifetime. Let say if you gave 1 crore rupees to someone So you can assume that your monthly pension will be around 50 to 60 thousand.
And it depends on what type of plan you choose Many people think that once I have given money, I will get that monthly pension for the rest of my life, but my lump sum amount will be given to the company and I will not get it back.
It is not like this Here you get four types of plans In the first plan, you will get an annuity for life. If you have given a lump sum amount to any company, so accordingly you will get a monthly pension I have checked a calculation of LIC I’ll show you If you invested 1 crore then you will get around 72,000 monthly pensions in this plan The second The plan is an annuity for life that means you will get a monthly pension plus the amount of corpus you have given. i.e.
return of purchase price If you invested 1 crore rupees then your nominee will get that money at the time of death. In this plan, if we take an example of one crore you will get RS. 53,000 monthly And the lump sum amount of one crore will be given to your nominee at the time of death The third plan is an annuity for life plus your spouse will get the monthly pension that you were getting before death, In this plan for example you will get RS 62,000 monthly And in the fourth plan, you will get all these three things That means you will get a monthly pension, after your death your spouse will also get the monthly pension that you were getting before your death And after the death of both, the total of your return of purchase price, the entire corpus amount of one crore will be given to your nominee.
According to this plan, in our example, you will get around 73,000 pension So here we understood Tier One Account properly Now we also see the calculation And how much money if we invest, Then how much corpus amount will be collected in the final and if we want to take 50% of them in the form of pension then how much we will get monthly Firstly let’s try to calculate our retirement Corpus then how much we can invest and what we will get in the final So I typed NPS calculator in google. The first link is to the website of NPS Trust.
Let us see what options we will get in the pension calculator I have already filled, here you have to fill in your date of birth. I have assumed that the person is 30 years old.
How much does his pension corpus will be, so I have filled the date of birth according to it. How much money you can invest every month, you can enter it here Whether you can invest 3000- 4000 and you can also invest 9000-10,000 15000 or 20000, you can invest any amount you want to invest. Accordingly, the total corpus money you will get is shown here.
Look here the total corpus is showing here So after seeing the corpus you can also make your bank calculations. If you calculate bank, then you will get an idea of how much you can invest every monthly As your salary increases, you can also increase the amount here.
Fill in your average amount every month. After that, you can enter your expected return of investment here. 10% is a reasonable amount, you will get 14% to 15% in equity,7-8% in government securities So we can take its average, let say if you invested 50% in equity or you invested 30 to 40% in equity then The average rate of return can be taken at 10%.
As I told you an earlier minimum of 40% you have to put in the pension So this calculator is starting from 40% only. You can increase it accordingly, how much you want to take in an annuity and what amount you want to take in the lump sum. Let say, 50% we will take the pension and 50% we will take the lump sum. And here you can decide the rate of annuity What rate you are expecting of annuity Nowadays 5-6% is a reasonable rate, here we are getting automatic default of 6% so I leave it as it is. Now let’s see what is the total Corpus If you invest 9000 rupees per month So by 10 percent, the total corpus after 30 years will be around two crores What was your actual investment, you have invested around 32,40,000 for the next 30 year But Let ‘s assume approximately that we will take Rs 1 crore in a lump sum and we will take the annuity of Rs 1 crore in the form pension.
So if you take one crore rupees in the form of an annuity plan So your monthly pension will be around RS 51,286. Here you can play around, let’s say if you think If you invest more in equity then what will be the Corpus amount so let’s set it at 12% Let’s say if we invested 60 to 70% in equity Then we can expect 12% returns. Here the amount of 2 crore increased to 3 crores because of only 2% so if you’re young, If you are under 30- 35 Then definitely you can be aggressive. You can invest 60 to 70% of your money in equity.
We discuss Corpus, lump sum, and pension Now let’s see what options annuity providers give us in the four plans Here you will go in the stakeholders and you will go to an annuity service provider so here you will get annuity rates and products now let’s take a look at the four plans we talked about.
So I have already calculated it, here you can fill in your details Here I assumed 60 years, the usual age of retirement You can enter your date of birth here You have to entered the age of 60 years, only then you will know exactly how much pension you will get according to the annuity Gender, you can fill in the rest of the details I have also filled in the date of the spouse I have also assumed the age of Spouse is 60 years.
And because we had assumed that we would take one crore from pension. We will invest buy one crore in an annuity plan. You can consider this as your purchase price. We call it purchase price because we have purchased an annuity plan for rupees 1 crore We will put the frequency of annuity, Monthly, Quarterly, Half Yearly, Yearly Options are available here And because we want monthly pension so I have selected monthly option.
You will submit it after entering a captcha. Here you will get plans on one crore Here is the option of LIC which I have discussed, Here you get a monthly pension of around Rs 72,700 If you take for yourself annuity for Life And in the second plan where you want your lump sum amount back If you want the one crore back which you have invested, then you will get Rs 53,750.
Or if you want after your death your spouse will get the same annuity, monthly pension So you can take this plan. Here you will get RS 62,667 monthly pension And in the fourth plan, your spouse will get a monthly pension plus you will also get the money back that you have invested so in this case you will get a monthly pension of around RS 53,417 And the fifth The plan is provided by SBI Life so you can study it. We have seen four plans of Life Insurance Corporation.
Here 5 insurance companies are providing services Here LIC, STAR UNION DAI-ICHI, SBI LIFE, HDFC, and ICICI are available You can go with the company you like.
So we talked about the tier-1 account till now Along with this you also get the option of a tier 2 account. This is not compulsory for you but if you want to open a Tier 2 account So it is very compulsory to have a tier 1 account, I have said this in my previous video also What is Tier 2 account exactly? You can consider it as an investment and savings account Or government employees can consider it like GPF. You can invest any amount in this.
There is no restriction of withdrawal here.
There are a lot of restrictions in the Tier 1 account which I discussed in the previous video. During investment, till you retire So you get the facility of partial withdrawal in the very restricted cases. You can invest any amount in Tier 2 account at any time and you can withdraw the money at any time. you can understand that it works like a mutual fund.
Your money is invested in the same way as it is invested in Tier 1 account. That means how much you will invest in equity and bonds, And how much you will invest in government securities, you can decide it and The second thing to remember is that in Tier 2 account You do not get any tax benefits within the account.
All tax benefits are applicable only for Tier 1 accounts. then Tier 2 account works more and less like a mutual fund. where your money is invested in different investment classes at different places.
that you can exactly decide, then you will ask what is the benefit of opening in Tier 2 account. see Tax Benefits are not available but if you want to manage your investments in one place. you don’t want to manage different portfolio. So you can make your investment in Tier 2 account in one place. where you get exposure of equity, Bonds and Government Security’s exposure.
so here we have understood Tier 1 account and Tier 2 account we have also seen the calculation that how much lump sum we can accept how much we will get a monthly pension.
Now from where you have to do this all online transaction. You can do these transactions from the website of NPS Trust. or you can download the NPS app from there. From there also all these transactions can be done.
That’s all for this video In the upcoming video, we will compare NPS with other popular investments. Like PPF, EPF, and mutual funds. We will see if NPS is a very attractive investment because of its tax benefits. If you liked this video then please like and share it. if you have any suggestions related to the channel related or this video.
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