- Date : 02/08/2022
- Read: 3 mins
With a disciplined investment approach and the magic of compounding, you can generate an income of more than 1 crore.
We all look forward to a stress-free and peaceful retirement. However, to achieve the financial freedom to live life on one’s terms, it is crucial to have a long-term investment plan. This plan needs to account for rising living and healthcare costs, along with other expenses one may have - such as an ongoing mortgage.
The following exercise will help you define the corpus or monthly income you need to generate. Use the data to construct a dedicated portfolio with varied retirement investment products that can help you get there.
Where to invest?
The National Pension Scheme (NPS) is a versatile retirement investment option that can be customised to attain different retirement goals. This voluntary retirement benefit scheme offers the dual benefit of lump sum maturity proceeds along with the security of regular income for one’s old age. What’s more, your capital investment, maturity proceeds, and pension are all exempt from tax as well.
There is a common misconception that investing in small savings schemes such as the NPS can only help you build a supplementary income. With a disciplined investment approach and the magic of compounding, you can generate income of more than 1 crore with an investment of just Rs 5000 per month! Read on to find out how.
How to earn Rs 2 lakh per month post retirement and build a substantial nest egg
As mentioned earlier, what you need is time and a disciplined investment strategy. According to the NPS calculator, if a 20-year-old started investing Rs 5000 per month in the scheme, they could receive a lump sum payment of Rs 1.91 crore at the time of retirement (age 60).
They will also receive an additional Rs 1.27 crore in annuity value, which will be reinvested as a source of pension. At 6% per annum, that annuity will be able to generate a pension of Rs 63,768 per month.
Now the investor can increase this annuity income to Rs 2 lakh if they reinvest the lump sum maturity payment of Rs 1.91 crore in a Systematic Withdrawal Plan (SWP). The SWP is like a mutual fund that allows you to invest a large lump sum amount and receive the capital plus interest for a fixed tenure, up to a maximum of 25 years.
At an interest rate of 8%, the reinvested corpus will generate a monthly income of Rs 1.43 lakh. Along with the annuity receivable, your monthly income could scale up to Rs 2,06,768!
In addition to being safe, NPS is one of the few investment avenues that pays out a much-needed monthly income post retirement without you having to withdraw or redeem your investment.
Through your working years, as your income and savings increase, you can step up your contribution towards the National Pension System and earn more as your capital compounds over the years. This way, you can live out your golden years as envisioned.