Retirement Planning with EPF, NPS, SCSS:After retirement, you may stop getting a salary, but the expenses remain. In such a situation, it is very important to have a good arrangement for regular income so that you can spend your retired life without financial problems. Schemes like National Pension System (NPS) and Employees Provident Fund (EPF) have been created for this purpose. If you invest in both these options with the right strategy, you can get better income after retirement. If you also add Senior Citizens Savings Scheme (SCSS), then retirement planning will become stronger. We will explain further the calculation of how a retirement fund of around Rs 3 crore can be created with a monthly salary of Rs 40 thousand. But first let us know briefly what is the meaning of EPF and NPS.
National Pension System
National Pension System (NPS) is an optional retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). You can invest in this scheme regularly during your working age. At least 40% of the corpus accumulated in this way has to be used to buy annuity, which will provide you regular monthly income. You can withdraw the remaining 60% in lump sum after retirement. The contribution made in NPS is invested divided into debt and equity according to your age and the scheme chosen. Therefore, the return on investment is not fixed but market linked.
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Employees Provident Fund
Employees’ Provident Fund (EPF) is a government-run retirement savings scheme to which regular contributions are made by salaried employees and their employers. This fund grows at a fixed interest rate and can be withdrawn in lump sum at the time of retirement.
NPS + EPF means Integrated Pension Scheme
If you use both NPS and EPF, you can get better regular income after retirement. Both the schemes together work like an Integrated Pension Scheme, which can give you a large corpus as well as regular and stable income after retirement. You can also understand how this strategy works through the calculations given below.
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EPF calculation
Current age of investor: 30 years
Retirement age: 60 years
Contribution period in EPF: 30 years
Monthly salary: Rs 40,000
Annual increase in salary: 5%
EPF interest rate: 8.1%
Estimated corpus at the time of retirement: Rs 1,99,51,298 (approximately Rs 2 crore)
NPS calculation
Current age of investor: 30 years
Retirement age: 60 years
Investment period in NPS: 30 years
Monthly contribution in NPS account: Rs 5000
Estimated annual return on NPS: 9%
Estimated corpus at the time of retirement: Rs 91,53,717
Minimum investment for annuity: Rs 36,61,487
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Fund worth Rs 2.91 crore will be created from both the schemes
It is clear from the above calculation that after retirement, the amount of funds of both EPF and NPS combined will be more than Rs 2 crore 91 lakh. Of these, it is necessary to invest minimum 40% of APS fund i.e. Rs 36.61 lakh in annuity. Since the entire EPF fund will be available to investors for your lump sum withdrawal, they can also increase their investment in annuity for more regular income.
Also read: It is important to choose the right annuity plan in NPS, only then you will get the full benefit of this pension scheme.
Use the corpus of EPF, NPS like this
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If you invest the entire Rs 91.53 lakh of NPS in annuity, then according to the current rates of Annuity Service Providers (ASP), you can get a monthly pension of around Rs 50 to 52 thousand with the option of return of purchase price.
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Even after this, the investor will be left with an EPF corpus of around Rs 2 crore.
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Rs 30 lakh can be invested in the Senior Citizens’ Savings Scheme from the EPF corpus.
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According to the current interest rate of SCSS, interest on investment of Rs 30 lakh will be Rs 61,500 every 3 months i.e. Rs 20,500 monthly.
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In this way, by combining the annuity income of NPS and the interest of SCSS, a monthly income of more than Rs 70 thousand can be generated every month.
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Even after this investment for regular income, more than Rs 1.6 crore will be left aside for EPF, which can be invested elsewhere to continuously increase the savings.
