National Pension System (NPS)

The National Pension System (NPS) is a long-term retirement savings arrangement that individuals between 18 and 70 years old can voluntarily participate in.

It offers two types of accounts:

1. a Tier I account, which is designed for retirement saving and provides tax advantages, and
2. a Tier II account, which works like a regular investment account with flexible withdrawals. Investors can select their preferred asset mix or opt for an age-based allocation model provided by NPS.

When you reach 60, up to 60% of your total savings can be withdrawn without tax, while the remaining portion has to be used to purchase an annuity to generate retirement income.

Example:

If someone contributes ₹2,000 a month, their funds are allocated across equity, bonds, and government securities depending on their chosen plan. Over time, this can accumulate into a sizeable retirement fund. If the corpus grows to ₹20 lakh by age 60, then ₹12 lakh may be withdrawn tax-free, while ₹8 lakh would be directed toward buying an annuity that pays out regularly.