NPS, EPF jugalbandi can deliver big retirement corpus with modest income | Personal Finance News

The Employees’ Provident Fund and National Pension System can be a potent combination to take care of one’s financial needs after the earning innings is over.

Anyone can opt for NPS and EPF to pave the way for financial freedom after retirement. (Picture Credit: depositphotos)

Peace in life after retirement is one of the eternal quests of most individuals. Peace, in turn, is dependent on financial freedom. Two of the instruments that can pave the way for financial freedom after 60 are the EOF (Employees’ Provident Fund) and NPS (National Pension System).

Let’s see how these can help one in planning one’s years as a senior citizen holding one’s head high. The Employees’ Provident Fund (EPF) is tailor made for this. It gives a lump sum at 58, or 60, and a monthly pension (relatively small). The NPS, on the other hand, can fetch one a handsome lump sum as well as a significant pension at and from the age of 60 respectively.

Growth and stability

The strength of the combination of NPS and EPF lies in the fact that they provide both growth and stability for any investor. If someone begins investing early in his/her career, it is not difficult at all to create a retirement fund of Rs 3-4 crore at the age of 60. Let’s see how.

The EPF calculation

Let the current age of the investor be 25 years. He is supposed to retire at 58. Let the age of retirement of the investor be 58.

Therefore, he/she invests in EPF for 35 years. The rate of interest has been assumed at 8.25% (the rate paid by the EPFO in FY24). Let’s also assume a modest salary hike of 5% (which, in fact, barely covers against inflation). With all these assumptions, the estimated corpus at retirement becomes Rs 1,75,58,980 (or Rs 1.75 crore).

The NPS calculator

Now let’s turn to NPS. Let’s assume our investor opens an NPS account right at the age of 25 and begins contributing to it. The amount is a meagre Rs 2,500 per month.
The other assumptions are – there is a 10% return on investment and at 60 years the individual reserves 40% of the corpus for annuity and takes 60% as lumpsum.

Well above Rs 4 crore

The NPS calculator tells us that a monthly pension of Rs 87,344 will be paid every month apart from a lump sum payment of Rs 2,62,03,141 (Rs 2.62 crore) will be paid at 60.

Therefore, the NPS-EPF jugalbandi will create a total corpus of Rs 4.37 crore apart from a monthly pension that will cross Rs 90,000, also taking into account the pension paid by EPFO.

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