Pension Calculator

Turning a corpus into a monthly cheque

A corpus of ₹50,00,000 at an annuity rate of 6% produces ₹25,000 a month for life — ₹3,00,000 a year. That is the trade an annuity makes: you hand an insurer a lump sum, permanently, and in return receive a guaranteed income that cannot be outlived.

Monthly pension = Corpus × annuity rate ÷ 12

50,00,000 × 0.06 ÷ 12 = ₹25,000.

The formula is trivial. The decision is not, because it is irreversible — once purchased, the capital is gone and the income is fixed.

What the annuity rate depends on

The rate an insurer quotes is not an investment return. It reflects prevailing interest rates, your age at purchase, and crucially which annuity variant you choose. Rates in India currently run broadly 5.5% to 7%, and the variant matters as much as the number:

Life annuity — pays the highest rate, stops entirely on death, nothing to heirs.

Life annuity with return of purchase price — pays a noticeably lower rate, perhaps 5.5% against 6.8%, but returns the full corpus to your nominee on death. On ₹50 lakh that is roughly ₹5,400 a month less, in exchange for preserving ₹50 lakh for your family.

Joint life — continues to your spouse, typically at 50% or 100%, at a lower rate reflecting the longer expected payout.

Increasing annuity — rises by a fixed percentage annually, starting materially lower. The only variant that addresses inflation.

Deferred annuity — purchased now, income begins later, at a higher eventual rate.

The inflation problem

This is the weakness that matters most and is discussed least. A level annuity pays the same rupee amount for life. ₹25,000 a month today, at 6% inflation, buys roughly what ₹7,800 buys in twenty years — and someone retiring at 60 may well need income at 85.

An increasing annuity addresses this but starts perhaps 25–30% lower, which many retirees find unacceptable at the point of purchase. The common compromise is to annuitise only part of the corpus, covering essential fixed costs, and keep the remainder invested for growth and flexibility.

Annuity versus systematic withdrawal

The honest comparison is against an SWP from a mutual fund:

The annuity guarantees income for life and removes longevity risk entirely — you cannot outlive it. In exchange you give up the capital, the flexibility, and any upside.

An SWP keeps you in control, leaves the corpus to your heirs, can be increased with inflation, and is taxed more favourably — only the gain portion of each withdrawal is taxable, whereas annuity income is fully taxable at your slab rate. But it can be exhausted, and it exposes you to sequence risk.

Most retirement planning that holds up uses both: an annuity sized to cover non-negotiable monthly costs, and an invested corpus for everything else.

Reading your result

The monthly figure is pre-tax. Annuity income is taxable as income from other sources at your slab rate, every year, for life — which materially changes the comparison against instruments taxed as capital gains.

Note also that if this corpus comes from NPS, annuitising at least 40% is compulsory rather than optional, so the relevant question is only which variant and which insurer.

Common mistakes

Accepting the default variant. Rates differ meaningfully between insurers and enormously between variants; this is a once-only, irreversible decision that deserves comparison shopping.

Ignoring inflation. A level annuity loses roughly half its purchasing power in twenty years at 6%.

Annuitising everything. Removing all flexibility to eliminate all longevity risk is rarely the right balance.

Forgetting the tax. A 6% annuity taxed at 30% nets about 4.2%.

Overlooking the spouse. A single-life annuity leaves a surviving partner with nothing.