NPS: The ultimate retirement solution you can't afford to ignore

Retirement is often seen as a time for exploration, self-discovery and self-fulfilment. Such romantic notions may need a revision. We may be sitting on a ticking time bomb called 'retirement'. Around 20 per cent of India's population is set to turn 60 by 2050. Yet, according to the 2022 India Retirement Index Study, 80 per cent of 3,220 urban respondents feared exhausting their savings within the first 10 years of retirement. Even more alarming, 37 per cent hadn't even started planning for their retirement. These numbers are hardly shocking. Until recently, retirement education criminally flew under the radar. Given our cultural antecedents, where children were expected to care for their parents and pension was predominantly guaranteed for most employees until the 90s, many households did not prioritise retirement. Even now, the pecking order is way down. It comes after buying a home and financing children's education and weddings. As such, many plan for retirement at a much later age, if at all. But with rising costs and high inflation, building a retirement kitty from an early age is no longer optional. You might have heard of NPS (National Pension System). It came into existence in 2004 (2009 for private employees) and has been a game-changer since then. Instead of providing assured pensions, the NPS opened a larger world of equity to its subscribers. Since equity can deliver inflation-beating returns in the long run, there's now a stronger likelihood of receiving a higher pension than what was offered earlier. All a subscriber has to do is contribute to the corpus. Yet, only 20 per cent of the subscribers are private sector employees. This, despite NPS delivering higher returns and saving a massive amount in tax. Tax-free contributions Being smart about taxes can further enlarge your retirement nest egg. The NPS can help you do that. Contributions to the NPS are tax-free in two key ways: Up to 14 per cent of your basic pay contributed by your employer is tax-free. Your employer can contribute up to Rs 7.5 lakh annually to the NPS without any tax liability. On the other hand, with mutual funds - another viable option for retirem

This article was originally published on September 17, 2024.