Retirement planning and the National Pension System (NPS) – How are they related?

Retirement planning is an important factor in today’s world. People are busy in their day-to-day lives to earn money and grow their wealth. People who work hard today look for a retirement plan to secure their golden years. One powerful tool that can help you with retirement planning is the National Pension System, also known as the National Pension Scheme. In this blog, we’ll explore the importance of retirement planning and how NPS can assist you in securing your retirement years.

Retirement Planning—Why Is It Important?

Retirement planning is an approach to preparing for your future financially. The main aim is to ensure that you can maintain the same lifestyle and achieve your goals after retirement. Here are a few reasons why retirement planning is important:

1. Inflation: The cost of living is going to rise, and your retirement savings have to be at par with the inflation rate at least, if not above. Without proper planning, your retirement fund may not be enough to live a better life.
2. Dependency: Without financial planning, you may depend on your family members, and it may put a strain on them.
3. Maintaining the Lifestyle: Retirement doesn’t have to mean cutting down your lifestyle or your financial goals. People have hobbies, passions, and dreams that they want to pursue after retirement. Proper retirement planning helps them to deal with the financial stress.

How can NPS help in your retirement planning?

The National Pension System is a government-sponsored retirement scheme designed to provide financial security. It can be an effective tool for retirement planning because of its features, such as flexibility, long-term growth, low investment cost, and tax benefits. Let’s dive into how NPS can play an important role in your retirement strategy:

1. Long-term Growth Potential: NPS invests in a mix of asset classes such as equities, government bonds, corporate securities, and AIFs. If you start early and invest regularly, you can have the benefit of compounding. This can help your investment grow over time. Your small contribution today can turn into a huge financial corpus.
2. Tax Benefits: NPS doesn’t only offer retirement planning, but it also comes with numerous tax benefits that can help you save your money today. Contributions to NPS are eligible for a tax deduction up to ₹1.5 lakh under Section 80 (C) of the Income Tax Act. Moreover, you can claim an additional tax benefit of up to ₹50,000 under Section 80CCD (1B). This makes NPS one of the most tax-efficient retirement planning tools available in the market.
3. Flexible Contribution: NPS gives you the flexibility to contribute as per your choice and budget. Whether you are just starting or near retirement, you can adjust your contributions based on your financial situation.
4. Low-cost Investment: This is one of the key features of NPS. Any Indian citizen between the ages of 18 and 70 can open an NPS Tier I account with ₹500 only.
5. Retirement Withdrawal: Upon retirement, an NPS subscriber can withdraw up to 60% of the accumulated corpus, while the remaining 40% must be used to buy an annuity that provides a regular pension.
6. Portability: When you change your job or location, your NPS account remains active. NPS is portable, which means you don’t start from the beginning every time you change your job or location.

How to open an NPS account? What are the factors you should consider? Click here to know. 

Final Thoughts

Retirement may seem far away today, but the earlier you start planning, the more you’ll benefit in the long term. With NPS you can start retirement planning and take advantage of its features such as flexibility, tax efficiency, market-linked returns, and low-cost investment. These can be viable factors to help you build a solid retirement corpus.