Retirement Planning with NPS? Remember these 5 key points

Have you ever considered retirement planning? If so, you must have come across the word ‘NPS’ or ‘National Pension System’. Many people hope that their retirement will bring them happiness and peace in their retirement years. To achieve this, you must plan for retirement and have good financial support. Retirement planning is the process to plan how you manage post-retirement years.

There are numerous benefits associated with the NPS. From flexibility, to low investment, to tax benefits, and in this blog we’ll explore what are things you should remember while investing in NPS. 

5 things to remember while planning NPS for retirement planning:

1. There are two categories which come under NPS, Tier-I and Tier-II. Tier-I is the primary and compulsory account. It is intended mainly for retirement funds. In comparison to the Tier-I, the voluntary savings account known as the Tier-II account offers greater flexibility when it comes to withdrawals. If you have an active Tier-I account only then you are eligible to open this optional account. To know the difference between Tier 1 and Tier 2 accounts, click here. 

2. NPS is a long-term retirement savings scheme. A long-term commitment is required to reap the benefits of compounding. Your money has the potential to grow more the longer it is invested. And when a subscriber turns 60, they are allowed to take out up to 60% of their cumulative corpus under NPS Tier-I account. Moreover, you have the option to keep this amount invested until you turn 75 and withdraw it gradually using the systematic lump sum withdrawal (SLW) option. The remaining 40% can be used to purchase annuities to get pension on a regular basis. It is noteworthy that the primary purpose of NPS is to serve as a long-term retirement savings vehicle and it may have some implications on the final corpus if you withdraw the amount before the prescribed retirement age.
   
3. The National Pension System (NPS) gives you the option to select between government securities, corporate bonds, alternative investments, and equities. Your risk tolerance should be in line with your financial goals. It is crucial to regularly monitor your asset allocation with changing conditions. Additionally, there are options, ‘auto’ and ‘active’ choice, where a person can leave the asset allocation to an algorithm based on their age or choose their own decisions based on their risk tolerance.

4. NPS also comes with various tax benefits. Section 80 CCD (1) of the Income Tax Act allows for a deduction of up to ₹1.5 lakhs. Moreover, an additional deduction for NPS investments under section 80 CCD (1B) of the Income Tax Act of up to ₹50,000.
   
5. The National Pension System is managed by expert fund managers that are authorized and appointed by the Pension Fund Regulatory and Development Authority (PFRDA).

Conclusion

While investing in the National Pension System, you need to consider the above mentioned pointers. Retirement planning is essential for many individuals who look to invest and create a corpus for their golden years. But it is also advisable to contact a professional financial expert before you start your NPS journey.