Monthly pension from annuity.
Monthly pension
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Annuity corpus
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Lump sum (tax-free)
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What an annuity actually buys you at 60
An annuity is the trade you make at retirement: you hand a life-insurance company a lump sum, and in return it pays you a fixed amount every month for as long as you live (or for a fixed term, depending on the variant you pick). In the Indian context the conversation almost always starts with the National Pension System, because NPS forces this decision on you. This tool estimates the monthly pension that lump sum will generate at a given annuity rate, using the same straightforward yield approach the major annuity providers quote in their illustrations.
The 40% rule that defines NPS exit
When you exit NPS at 60, the regulator (PFRDA) requires that at least 40% of your accumulated corpus be used to purchase an annuity. The remaining 60% can be withdrawn as a tax-free lump sum under Section 10(12A). Many retirees choose to annuitise exactly 40% to maximise the tax-free withdrawal, but the calculator lets you push it higher if you want a larger guaranteed monthly income and care less about the lump sum. If your total corpus is ₹5 lakh or below, the rules let you withdraw the whole thing without buying any annuity at all.
Worked example: a ₹1 crore corpus, 40% annuitised at 6.5%
Suppose you retire with a ₹1 crore NPS corpus and annuitise the minimum 40%. That sends ₹40 lakh into the annuity and leaves ₹60 lakh as a tax-free lump sum. At an annuity rate of 6.5% per year, the monthly pension is the annual yield divided by twelve.
| Item | Value |
|---|---|
| Total NPS corpus at 60 | ₹1,00,00,000 |
| Annuitised portion (40%) | ₹40,00,000 |
| Lump sum withdrawn (60%, tax-free) | ₹60,00,000 |
| Annual annuity income (6.5% of ₹40L) | ₹2,60,000 |
| Monthly pension (÷ 12) | ₹21,667 |
The split below shows how the ₹1 crore divides, with the annuity slice generating that ₹21,667 a month.
Why your rate matters more than your annuity provider
Annuity rates in India have hovered in the 6% to 7.5% band for the "Annuity for Life" option for years. That sounds low next to equity returns, and it is, but the trade you are buying is certainty for life, not growth. Where it gets nuanced is the annuity variant: a simple "Annuity for Life" pays the most per month but stops when you die. A "Return of Purchase Price" variant returns the ₹40 lakh to your nominee but pays a noticeably lower monthly rate, often closer to 6%. A "Joint Life" annuity continues for your spouse but pays less again. The calculator uses one blended rate, so model the variant you actually intend to buy by adjusting the rate field.
The tax point retirees underestimate
The 60% lump sum is tax-free. The annuity pension is not. Every rupee of that ₹21,667 a month is taxable as income under the head "Income from Other Sources" (or salary, depending on interpretation) in the year you receive it, at your slab rate. So a retiree with other income could see the effective pension shrink after tax. My practical view: NPS is excellent on the accumulation side because of the extra ₹50,000 deduction under Section 80CCD(1B), but go in with clear eyes that the pension leg is fully taxable, which makes the forced 40% annuitisation less attractive than the headline corpus suggests.
Can I buy an annuity outside NPS?
Yes. Any retiree can approach LIC or a private life insurer and buy an immediate annuity with their own savings, FD maturities, or EPF corpus. The same rate mechanics apply. The 40% compulsion is specific to NPS exits; a voluntary annuity has no such floor.
Is the annuity rate guaranteed for life?
For an immediate annuity, yes. The rate is locked at purchase and the monthly payment never changes for the rest of the annuity term. This is its strength and its weakness: it is fully protected against market falls, but it offers no inflation protection unless you specifically buy an increasing-annuity variant, which starts at an even lower base rate.