Retirement is a phase of life that brings the need for a stable and sufficient income, as expenses do not stop even after regular salary ceases. For those planning retirement with a salary of Rs 40,000 per month, using a combination of Employees’ Provident Fund (EPF), National Pension System (NPS), and Senior Citizens’ Savings Scheme (SCSS) can help build a retirement corpus of Rs 3 crore or more. With a smart strategy, these schemes together can ensure financial security and a regular income after retirement.
Let’s break down how these schemes work and how you can achieve this goal.
Understanding EPF (Employees’ Provident Fund)
The Employees’ Provident Fund (EPF) is a government-regulated savings scheme for salaried employees, where both the employee and employer contribute regularly. The contributions made over your working years grow at a fixed interest rate. Upon retirement, the entire amount can be withdrawn in a lump sum, providing you with a significant fund.
- Lock-in Period: Contributions are made until retirement.
- Interest Rate: As of now, EPF offers an interest rate of 8.1%.
- Withdrawal: Full withdrawal is allowed at retirement, but partial withdrawals can be made for specific purposes like home purchase, education, or medical emergencies.
What is NPS (National Pension System)?
The National Pension System (NPS) is a government-backed voluntary retirement scheme aimed at helping individuals build a pension corpus. The contributions in NPS are invested in a mix of equity and debt markets based on the investor’s risk profile and preferences. NPS ensures regular pension income by mandating that at least 40% of the total accumulated corpus is invested in annuity products, while the remaining 60% can be withdrawn in lump sum after retirement.
- Returns: NPS returns are market-linked and can vary, with an average annual return of around 9%.
- Flexibility: The contributions can be adjusted, and the investor can decide the mix between equity and debt.
SCSS (Senior Citizens’ Savings Scheme)
Once you retire, you can also invest a part of your corpus in Senior Citizens’ Savings Scheme (SCSS). SCSS is designed specifically for people over the age of 60 and offers a secure and regular income post-retirement.
- Interest Rate: SCSS offers an attractive interest rate, currently at around 8.2%, paid quarterly.
- Lock-in Period: 5 years, with an option to extend for another 3 years.
EPF + NPS: The Integrated Pension Strategy
By investing in both EPF and NPS, you can build a strong financial base for your retirement. These schemes work like an integrated pension plan, providing a large corpus and a stable income source. Here’s how the numbers work out:
EPF Calculation (Based on Rs 40,000 Salary)
- Investor’s Age: 30 years
- Retirement Age: 60 years
- Contribution Period: 30 years
- Monthly Salary: Rs 40,000
- Annual Salary Increase: 5%
- Interest Rate on EPF: 8.1%
After contributing regularly to EPF, by the time you retire at 60, the corpus will be approximately Rs 2 crore.
NPS Calculation (Based on Rs 5000 Monthly Contribution)
- Investor’s Age: 30 years
- Retirement Age: 60 years
- Investment Period: 30 years
- Monthly Contribution to NPS: Rs 5000
- Expected Annual Return: 9%
With a monthly contribution of Rs 5000 to your NPS account, you can expect to accumulate a corpus of around Rs 91.53 lakh at retirement. Out of this, at least 40% (Rs 36.61 lakh) must be invested in an annuity to secure regular monthly pension payments, while the remaining 60% can be withdrawn as a lump sum.
Combining the Funds: Rs 2.91 Crore Corpus
By combining your EPF and NPS investments, you will have a retirement fund of Rs 2.91 crore. The NPS portion will provide you with regular pension income, while the EPF amount can be withdrawn as a lump sum for various needs.
How to Use the Funds Post-Retirement
- Investing in Annuity (NPS):
If you invest the entire Rs 91.53 lakh NPS corpus into an annuity, you can expect a monthly pension of around Rs 50,000 to Rs 52,000, depending on the annuity plan chosen. - Investing in SCSS (From EPF Corpus):
You can further enhance your regular income by investing Rs 30 lakh from the EPF corpus into SCSS. At the current SCSS interest rate, you will receive Rs 61,500 every 3 months, which translates to a monthly income of Rs 20,500.
Total Monthly Income
By combining the Rs 50,000 to Rs 52,000 monthly annuity from NPS and Rs 20,500 monthly interest from SCSS, you can generate a total monthly income of over Rs 70,000.
Extra Corpus for Future Investments
Even after setting aside Rs 30 lakh for SCSS, you’ll still have around Rs 1.6 crore left from your EPF corpus. This amount can be invested in other low-risk, high-return schemes or mutual funds to further grow your savings, ensuring long-term financial security.
