What is NPS Calculator?
NPS calculator is a tool that you can use to estimate the retirement corpus that you can accumulate when you turn 60 by investing in the National Pension System over a specific period of time. The NPS (National Pension System) is an optional pension scheme that any Indian resident between the ages of 18 years to 60 years can invest in. Returns generated by the National Pension System are not guaranteed as your money is invested in various market-linked instruments hence the results provided by the NPS maturity value calculator are estimates.
Why do we use NPS Calculator?
National Pension System is a government sponsored market-linked investment, as a result, the returns from this investment are not guaranteed. Using the NPS calculator, you can estimate the amount that you can accumulate as NPS retirement corpus when you reach retirement age i.e. 60 years. What’s more, under existing NPS rules, you are not allowed to withdraw the entire amount at maturity and you are required to purchase annuities worth at least 40% of your accumulated NPS corpus at retirement. The remaining 60% of the corpus can be withdrawn subject to applicable NPS taxation rules.
The annuity purchase acts as a source of pension income after retirement, hence estimating your final retirement corpus will play a key part in determining the post retirement monthly pension of the NPS subscriber. Alternately, using the NPS calculator you can estimate the amount that you need to save periodically in order to achieve a target retirement corpus.
NPS Calculator Calculation Formula
The NPS Calculator formula for calculation of future corpus in the National Pension System account is based on the following fields:
- Age of the NPS subscriber – The earlier in life one subscribes to NPS, the larger the final NPS corpus that they can potentially accumulate due to the power of compounding. You are required to input your date of birth into the NPS calculator to automatically calculate the years of contribution into the scheme.
- Monthly NPS investment – This is an estimated monthly amount that you are planning to invest into the scheme.
- Expected return on NPS investments – The amount you invest in NPS is invested into select market-linked instruments. As the returns provided by market-linked instruments cannot be predicted with certainty, you will have to input the estimated return on investment (RoI) from your NPS account.
- Expected Annuity Rate – Under existing NPS rules, you are mandatorily required to purchase annuities worth at least 40% of the accumulated corpus at the time of retirement. The annuities purchased provide pension income and also provide returns to the annuity purchaser. Thus you are required to input the expected annuity RoI into the NPS calculator.
National Pension Scheme Calculation Method
The NPS calculation method as programmed into the NPS maturity value calculator is based primarily on the concept of compounding similar to a compound interest calculator. However, there are some key differences between the standard compound interest calculator and the NPS calculation method as follows:
- The investment amount is used to calculate the total principal amount invested by the time you retire i.e. at the age of 60 years.
- The principal amount invested is compounded annually based on the principle similar to a recurring deposit calculator to arrive at the value of the total corpus (principal amount invested + returns earned over the investment tenure) at the time you retire i.e. when you turn 60 years of age.
- Subsequently, the NPS calculator allocates the total accumulated corpus to annuity purchase and lump sum withdrawal according to the proportion of corpus set aside for annuity purchase as selected by you (subject to the minimum mandatory annuity purchase equalling minimum 40% of corpus).
- The annuity portion of the corpus as calculated in the previous step is subsequently compounded on the basis of the expected annuity rate of return as input by you into the NPS calculator.
NPS Calculator Results
The results provided by the NPS calculator include the following:
- Total principal amount invested over the NPS account tenure
- Total corpus generated at retirement based on expected ROI.
- Total amount of annuities to be purchased at maturity.
- Total amount eligible for lump sum withdrawal at maturity.
- Estimated monthly pension post retirement based on annuity purchase.
NPS Calculator Maturity Value with Example
The NPS calculator is a free to use and provides NPS investment maturity value details based on key information provided by you. The following is an example of estimating NPS maturity value and future monthly pension using the NPS calculator.
The following are key data input in the NPS Calculator maturity value example:
- Your age = 34 years
- Amount to be contributed monthly = Rs. 3000
- Total years of contribution (automatically calculated based on your age) = 26 years (60 years – 34 years)
- Expected return on investment = 10%
- Percentage of Annuity purchase = 50% (minimum 40% under existing NPS rules)
- Expected rate of return on annuity = 6%
Output provided by the pension calculator is as follows:
- Total Investment (Principal Invested) = Rs. 6.24 lakh
- Total Corpus at maturity (Principal + Returns) = Rs. 29.81 lakh
- Annuity Value (50% of corpus) = Rs. 14.9 lakh
- Lump Sum Value (50% of corpus) = Rs. 14.9 lakh
- Expected monthly pension = Rs. 7,453
How to Invest in the National Pension Scheme?
National Pension System investments can be made via two key routes – online and offline. The following are some of the key online routes for making NPS investments:
- Through websites of notified banks that was allowed to provide NPS investment option.
- Through the Karvy or NSDL website.
In case you have opted for the offline NPS investment route, you can invest through registered NPS PoP (points of presence). Know more about opening NPS account
Q – Who can use the NPS calculator?
Ans – The NPS calculator is a free to use tool that can be accessed by any current NPS subscriber or potential subscriber without any limitations.
Q- Are the results provided by the NPS calculator accurate?
Ans – The NPS maturity value calculator uses data provided by you (such as investment amount, rate of return, etc.) to provide details of how much your retirement corpus and monthly pension will be worth after retirement. Thus, as the results are primarily dependent on the input provided by you, the accuracy of NPS results will primarily depend on how accurate your inputs are.
Q- Can I separately find the maturity value of NPS Tier 1 and NPS Tier 2 account using the calculator?
Ans- In its current form, the NPS calculator does not differentiate between the NPS Tier 1 and NPS Tier 2 account thus separate maturity value of NPS Tier 1 and NPS Tier 2 accounts are not available using this tool.
Q- Can I find the NPS maturity value tax liability or tax benefit using the NPS calculator?
Ans – No. This is currently one of the limitations of the current NPS calculator. The calculator does not take into account any of the tax implications of NPS Tier 1 or Tier 2 NPS accounts.
Q- I have opted for the Auto choice – Lifecycle Fund option of National Pension System. Can I use the NPS maturity value calculator?
Ans – Yes. As you are required to provide estimated returns on your NPS investments, you can use the NPS calculator to estimate your retirement corpus irrespective of whether you have chosen the auto-choice or active choice option offered by NPS.