I am 25 and earning 41k a month. My monthly expenses are 19k and I save around 22k a month. I have started investing in mutual funds and investing 12k/month. My financial goal is to have a corpus of 4-5 Cr at the time of my retirement. Would like to retire at 55. Should I consider investing in NPS? Please advise.

Ans: It's impressive to see your proactive approach to financial planning at such a young age. With a healthy income and diverse investments, you're laying a strong foundation for your future. Your current SIPs reflect a balanced approach, diversifying across various market segments.

Regarding NPS, it's understandable that the lock-in period may not align with your comfort level. While NPS offers tax benefits and retirement planning advantages, it's essential to choose investment avenues that resonate with your financial goals and preferences.

Considering your financial situation and goals, a Certified Financial Planner can help streamline your investments and align them more closely with your aspirations. They can guide you on optimizing your portfolio, considering factors like risk tolerance, time horizon, and liquidity needs.

Remember, financial planning is a dynamic process. As you progress in your career and life, your goals and priorities may evolve. Regular reviews and adjustments to your investment strategy can help you stay on track. Keep up the good work, and best wishes for your financial journey ahead!

Ans: It’s great to see you considering the National Pension System (NPS) at 51. While NPS can provide significant benefits, your age does play a role in determining your contributions and expected returns. Here’s an overview of what you should consider:

NPS Overview: NPS is a long-term investment scheme designed to provide retirement income. It allows you to build a retirement corpus through regular contributions during your working life, which can then be converted into an annuity upon retirement.

Eligibility: There are no restrictions on joining NPS based on your age. You can open an NPS account until the age of 70. However, keep in mind that the sooner you start contributing, the larger your corpus will be at retirement.

Retirement Planning: Since you are 51, you have about 9-15 years left before retirement, depending on your retirement age. This time frame will influence how much you need to contribute annually to achieve your desired monthly income.

Desired Monthly Annuity
You mentioned that you require Rs. 60,000 per month through NPS annuity. Let's break down how much you would need to invest annually to reach that goal.

Calculating Required Corpus for Monthly Income
To calculate how much you need to invest, we first need to determine the total corpus required to generate a monthly income of Rs. 60,000.

Annual Requirement: Rs. 60,000 x 12 = Rs. 720,000 per year.

Withdrawal Rate: A common guideline for sustainable withdrawals in retirement is around 4% annually. This means your total retirement corpus should be 25 times your annual requirement.

Required Corpus:

Required Corpus = Annual Requirement × 25
Required Corpus = 720,000 × 25 = Rs. 18,000,000

This means you would need a total corpus of Rs. 1.8 crore to generate a monthly annuity of Rs. 60,000.

Contribution Calculation for NPS
Next, let's determine how much you need to contribute annually to reach this corpus in the given time frame.

Time Horizon: Assume you plan to retire at age 60, giving you 9 years to accumulate this corpus.
Estimating Returns
The NPS primarily invests in equity, government bonds, and corporate debt. The expected annual return can vary, but a conservative estimate for NPS is around 8% to 10%. For our calculations, let’s use 9% as a reasonable expected return.

Annual Contribution Requirement
You would need to invest approximately Rs. 1,184,156 annually in NPS to achieve your goal of a monthly annuity of Rs. 60,000.

Considerations
Existing Investments: Since you are already invested in PPF, mutual funds, and insurance, ensure that these contributions align with your overall retirement plan. Your total investments can supplement the corpus you build in NPS.

Risk Tolerance: Given your age and time to retirement, assess your risk tolerance. NPS has options for both aggressive (more equity) and conservative (more debt) investments. Depending on your comfort level, you can adjust your asset allocation.

Tax Benefits: NPS offers tax deductions under Section 80C and additional deductions under Section 80CCD(1B). This can help you save on taxes while investing.

Diversification: It’s wise to keep a diversified investment portfolio. While NPS is a great tool for retirement, ensure that you maintain other investments that can provide liquidity and growth.

Final Insights
Starting NPS at 51 is a viable option to enhance your retirement savings. To achieve a monthly annuity of Rs. 60,000, aim for an annual investment of approximately Rs. 1,184,156 at an estimated return of 9%.

This approach, along with your existing investments in PPF and mutual funds, can help you build a robust retirement corpus.

Consider speaking to a Certified Financial Planner to tailor a strategy that fits your financial landscape and future aspirations.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hello;

You may invest in NPS upto the age of 70.

However even auto choice would also only allow 60-50% equity allocation at this age.

If this is okay with then please go ahead.

Else you may also think about investing in ICICI Pru Retirement Fund (G) -Hybrid Aggressive plan which is a type of solution oriented mutual fund for retirement planning.

It comes with a mandatory 5 year lock-in.

Equity allocation maybe between 65-80% and debt allocation maybe 35-20%.

Select whatever suits your risk tolerance.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.