How Does Retirement Age Affect NPS Withdrawal Rules?

The National Pension Scheme (NPS) is a government-backed retirement savings initiative designed to encourage systematic long-term investment. It helps individuals accumulate a corpus during their working years and provides financial security after retirement. One of the most important aspects of the NPS is understanding how the NPS withdrawal rules apply, particularly with respect to the retirement age. The age at which you retire directly affects your withdrawal options, the amount you can access as a lump sum, and the portion that must be used to purchase an annuity.

Understanding the structure of the National Pension Scheme

The National Pension Scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is open to all Indian citizens between the ages of 18 and 70. The scheme operates on a defined contribution basis, where both the employee and employer (in the case of corporate subscribers) contribute regularly to an individual retirement account.
NPS contributions are invested in a mix of asset classes such as equity, government bonds, and corporate debt, offering both safety and growth. The returns are market-linked, and subscribers have the flexibility to choose their investment mix based on their risk tolerance and retirement timeline.

The significance of retirement age in NPS

Retirement age plays a crucial role in determining when and how you can withdraw your NPS corpus. The default retirement age under the National Pension Scheme is 60 years, but subscribers have the flexibility to extend their contributions until the age of 70. The longer you stay invested, the greater your potential returns due to the power of compounding and market appreciation.
When you reach the age of 60, you can withdraw up to 60 per cent of your total corpus as a lump sum, while the remaining 40 per cent must be used to purchase an annuity that provides regular monthly income. These ratios are governed by the NPS withdrawal rules and are designed to ensure financial stability throughout your retirement years.

NPS withdrawal before retirement

Under the NPS withdrawal rules, if you wish to exit the scheme before the age of 60, at least 80 per cent of your accumulated corpus must be used to buy an annuity, while the remaining 20 per cent can be withdrawn as a lump sum. This rule is meant to encourage long-term participation and prevent premature depletion of retirement savings.
Partial withdrawals, however, are allowed after three years of continuous contribution. Subscribers can withdraw up to 25 per cent of their own contributions (excluding employer contributions) for specific purposes such as higher education, marriage, medical treatment, or purchasing a home.

Extending the retirement age under NPS

Subscribers can choose to extend their NPS contributions beyond the age of 60 up to 70 years. Extending your investment period allows the corpus to grow for a longer duration and accumulate higher returns. This option is beneficial for individuals who continue to work after 60 or those who want to maximise their retirement savings. The NPS withdrawal rules permit partial withdrawals even after extending the contribution period, subject to the same conditions as before.

How retirement age affects annuity income

The age at which you retire directly influences the annuity income you will receive. Purchasing an annuity at an older age generally provides a higher monthly pension because the payment period is expected to be shorter. Conversely, retiring earlier may result in a lower annuity amount, as the same corpus must sustain payments over a longer duration.
By delaying retirement or continuing contributions until 65 or 70, you not only increase your corpus but also enhance the annuity rate offered by pension providers under the National Pension Scheme.

Tax benefits under the NPS

The National Pension Scheme offers attractive tax incentives under Sections 80C and 80CCD of the Income Tax Act. You can claim deductions of up to Rs. 1.5 lakh under Section 80C, plus an additional Rs. 50,000 under Section 80CCD(1B). The lump-sum withdrawal of 60 per cent at retirement is completely tax-free, while annuity income is taxable as per your income slab. These benefits make the NPS one of the most tax-efficient retirement savings instruments in India.

Managing risk through asset allocation

NPS offers flexibility in asset allocation between equity (E), corporate debt (C), and government securities (G). Younger investors can allocate a higher portion to equity for long-term growth, while those nearing retirement can shift to safer instruments to preserve capital. The NPS withdrawal rules allow you to change your asset allocation once or twice a year, ensuring your portfolio remains aligned with your risk profile and retirement timeline. This flexibility helps you achieve optimal balance between growth and safety.

Importance of planning beyond NPS

While the National Pension Scheme ensures a steady stream of income after retirement, it is equally important to have additional investments for flexibility and liquidity. Fixed Deposits (FDs) are a reliable complement to NPS savings. They offer guaranteed returns, predictable income, and easy accessibility without exposure to market volatility. Bajaj Finance, for example, provides digital FDs with competitive interest rates, flexible tenures, and top-tier safety ratings—CRISIL AAA/STABLE and ICRA AAA/STABLE.
For retirees, FDs provide an excellent source of regular income through periodic interest payouts, while cumulative FDs can be used for long-term goals such as healthcare or legacy planning. Combining NPS with secure FDs ensures both stability and consistent cash flow in retirement.

Why you should review your NPS plan regularly

As your retirement age approaches, reviewing your NPS strategy becomes essential. Monitor your investment performance, check your annuity options, and ensure your withdrawal plan aligns with your future financial needs. The NPS withdrawal rules allow enough flexibility to adjust your contributions, defer withdrawals, or continue growing your corpus until you feel financially secure to retire.

Final thoughts

The NPS withdrawal rules are closely linked to your retirement age and directly impact how much you can access as a lump sum and how much must be used for annuity purchase. Delaying retirement or extending contributions under the National Pension Scheme can substantially increase your final corpus and pension income. To ensure complete financial independence after retirement, consider supplementing your NPS savings with reliable fixed-income investments such as Bajaj Finance Fixed Deposits. This balanced approach helps secure both growth and liquidity, ensuring a comfortable and worry-free retirement.