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Everyone looks to get a regular pension after retirement, and here NPS annuity plays the key role after you retire from your work. NPS helps you build a retirement fund during your working years, and the annuity helps you convert a portion of that fund into regular income after retirement. Instead of receiving all your retirement savings at once, a part of it is used to ensure that you get a steady flow of money for your daily expenses once your salary stops.
NPS annuity aims to bring financial stability in old age. Many people retire with a lump sum but struggle to manage it over time. Expenses like household needs, medical costs, and lifestyle expenses continue even after retirement. An NPS annuity ensures that you do not outlive your savings and have a predictable income to rely on.
How NPS Annuity Works After Retirement
When you reach the age of retirement, usually sixty years, your NPS account will have a total accumulated amount known as the retirement corpus. As per NPS rules, you can withdraw up to 60% of this corpus as a lump sum for immediate needs. The remaining amount must be used to purchase an annuity from an approved annuity service provider.
Once you buy the annuity, the provider starts paying you a fixed income at regular intervals. This income can be monthly, quarterly, or yearly, depending on the option you choose. The amount you receive depends on factors such as the annuity rate at the time of purchase, the option selected, and the amount invested. From this point onwards, the annuity acts like a personal pension that supports your regular expenses.
The payment usually continues for your lifetime. In some cases, the income can also continue for your spouse after your death. This structure ensures that retirement income is not dependent on market movements or personal financial decisions after retirement.
Types of NPS Annuity and Choosing the Right One
NPS annuity comes with multiple options to suit different retirement needs. Some annuity options provide income only during your lifetime, while others ensure that your spouse continues to receive income after you are no longer around. There are also options where the amount invested in the annuity is returned to your nominee after both spouses pass away.
Each option has a different income level. Plans that offer a return of the purchase price usually provide slightly lower regular income, while lifetime-only plans offer higher payouts. Choosing the right NPS annuity depends on your family responsibilities, health condition, and the level of financial security you want for your loved ones.
It is important to understand that annuity income is meant for stability, not growth. The purpose is to ensure regular cash flow and peace of mind during retirement years. Comparing annuity providers and understanding their offerings helps in making a better decision.
Click here to know more about choosing between mutual funds and NPS for retirement.
Final Thoughts
In simple words, NPS helps you save for retirement, and an NPS annuity helps you live on those savings. Together, they ensure that your retirement years are supported by a steady income and financial certainty.
