The National Pension System (NPS) forms a growing part of Indian retirement planning, but its unique withdrawal rules require special consideration. Unlike mutual funds or PF, NPS has mandatory annuity purchases and withdrawal limits that impact how long your money lasts. This guide explains NPS withdrawal options, annuity selection strategies, and how to integrate NPS with other retirement assets for maximum longevity. You'll learn to estimate your NPS income duration and supplement it effectively.
NPS Withdrawal Rules
At 60: Can withdraw 60% lump sum (tax-free), must buy annuity with 40%. At 60-75: Can defer withdrawals or take partial (max 20% lump sum). Annuity options: 1) Life annuity (highest payout, no return), 2) With return of purchase price (lower payout, corpus returned), 3) Joint life (spouse continues), 4) Inflation-linked. Current annuity rates: ~6-7% for life annuity. Example: ₹50L NPS at 60 → ₹30L tax-free lump sum + ₹20L annuity → ₹10-12K/month annuity income. Critical note: Annuity income is fully taxable unlike lump sum.
Longevity Calculations
Annuity portion duration: ₹20L annuity at 6% = ₹12K/month until death (no inflation adjustment). Lump sum sustainability: ₹30L invested at 7% with ₹10K/month withdrawal lasts ~12 years. Combined approach: ₹12K annuity + ₹10K self-managed = ₹22K/month for 12 years, then ₹12K thereafter. Better strategy: Take minimum 60% lump sum, invest 50% of it (₹15L), use rest for expenses. This creates: ₹12K annuity + ₹8K (from ₹15L at 7%) = ₹20K/month lasting 20+ years. Annuity laddering: Buy annuities at 60, 70, 80 for inflation protection.
Integration with Other Savings
Ideal NPS role: Provides 30-40% of retirement income, supplemented by: 1) EPF/PPF (25-35%), 2) Mutual funds (20-30%), 3) Rental/pension (10-20%). Tax efficiency: Take NPS lump sum first (tax-free) while letting other investments grow. Withdrawal sequencing: 1) First 5 years: NPS lump sum + interest from FDs, 2) Mid-retirement: Mutual fund SWPs, 3) Later years: Annuity + PPF. Example flow: Age 60-65: ₹30L NPS lump sum + ₹20L FD = ₹50L @ ₹70K/month. 65-75: Mutual fund SWP ₹50L = ₹35K/month. 75+: Annuity ₹12K + PPF ₹15K = ₹27K/month.
Key Takeaways
NPS can reliably fund 20-30 years of retirement when combined judiciously with other assets. The key is not relying solely on its annuity component but creating a balanced withdrawal strategy across all your savings. Remember that annuities provide longevity insurance (protection against outliving savings) but lack growth potential - maintain some equity exposure even post-retirement. Annual reviews ensure your NPS withdrawals remain aligned with changing market conditions and lifestyle needs throughout retirement.