Retirement is that period of life when we can live our life fully, we can fulfill our unfulfilled desires, try to achieve our dreams, follow our passion and hobbies. These things can be achieved only when you have sufficient money and good health by your side. Every investor is concerned about his/her Golden Years.
Many times we saved a lot by sacrificing our present pleasure and enjoyment for sake of our retirement but don’t plan how to safeguard the retirement kitty once it is in our hands. What are retirees requirement when they retire?
- Prime requirement for retirees is of regular income to meet their day to day expenses.
- Second requirement is to protect the capital (corpus accumulated till date).
- And last but not least earn minimum 1% more than prevailing inflation rate.
After Retirement, Retirees have lots of time in hand which they want to spend on traveling, reading, chatting with friends and family etc. They want mental peace and want to live financial worry free life. This can be achieved if they invest their money in proper financial products which guarantee them regular income, capital protection and good rate of return. This can be achieved by having 80:20 debt and equity ratio asset mix.
Following are the products available to park your retirement corpus in India.
- Senior Citizens Saving Scheme – The Senior Citizens Savings Scheme (SCSS) is primarily for the senior citizens of India. The scheme offers a regular stream of income with the highest of safety and tax saving benefits. It is an apt choice of investment for those over 60 years of age. An individual can invest a maximum amount of Rs 15 lakhs, individually or jointly in an SCSS account (in multiples of Rs 1,000). The tenure of this scheme is 5 years with the option to extend it for further 3 years. SCSS is a very good scheme for senior citizens who want a decent risk free return on a corpus fund. At an 8.5% interest rate and an investment amount of 15 lakhs, the monthly income is stated to be Rs 10,625 per month for each investor.
- Post office Monthly Income Scheme– Post Office Monthly Income Scheme is a scheme in which you invest a certain amount and earn a fixed interest every month. It is a low-risk MIS and generates a steady income. You can invest up to Rs. 4.5 lakhs individually or Rs. 9 lakhs jointly, and the investment period is 5 years. Capital protection is its primary objective and earn a fixed interest every month. POMIS has the flexibility and reliability that appeal to risk-averse investors, albeit with limited tax benefits.
- Bank Fixed Deposits: This is the most favorite option amongst the retirees. Fixed Deposit is simple to understand, can be opened easily and handling and managing an FD is hassle-free for most of us. FDs are considered safe, liquid, and provide assured interest income. Millions of Indians favor the surety of an FD. Senior citizens get more interest rate than common individuals.According to newly inserted section 80TTB in the Income Tax Act, interest amount received up to Rs 50,000 on deposits held with banks, co-operative banks or post offices are effectively tax-exempted. This tax exemption works as follows: A senior citizen can claim deduction of up to Rs 50,000 interest income earned from these entities as deduction from gross total income before levy of tax.
- Mutual funds: Mutual fund Investment for senior citizen should be characterized as low risk, moderate returns and moderate to high liquidity. Debt, balanced and liquid mutual funds are the main categories fulfilling these objectives. Retirees can have 75 to 80% of their mutual fund investment in Debt mutual fund whereas they can opt 20 % exposure in Equity mutual fund for providing inflation beating returns. They can prefer dividend plan over a growth plan so that there is constant flow of income from the fund in the form of dividends.
- Immediate annuities- Retirees could also consider the immediate annuity schemes of life insurance companies. The pension or the annuity is currently around 5-6 per cent per annum and is entirely taxable. There are about 7-10 different pension options, including pension for lifetime for self, after death to spouse and post that the return of corpus to heirs.
- Pradhan Mantri Vaya Vandana Yojana – (PMVVY) is a Pension Scheme announced by the Government of India exclusively for the senior citizens aged 60 years and above which is available from 4th May 2017 to 31st March 2020. Scheme provides an assured return of 8% p.a. payable monthly (equivalent to 8.30% p.a. effective) for 10 years. Pension is payable at the end of each period, during the policy term of 10 years, as per the frequency of monthly/ quarterly/ half-yearly/ yearly as chosen by the pensioner at the time of purchase. On survival of the pensioner to the end of the policy term of 10 years, Purchase price along with final pension installment shall be payable.Investment limit is Rs 15 lakhs per senior citizen. Maximum Pension is Rs. 10,000/- per month.
- Reverse Mortgage- As a part of the post- retirement investment options, a reverse mortgage is a good option for senior citizens who need a steady flow of income. In a reverse mortgage, stable money is generated from the lender in lieu of the mortgage on their homes. Any house owner who is 60 years of age (and above) is eligible for this. Retired people can live in their property and receive regular payments, until the death. The money receivable from the bank will depend on the valuation of property, its current price and well as the condition of the property..
These are some of the most popular and legal financial products specially for senior citizens. Always invest your hard-earned money in the reputed and tested financial products only. Don’t fall in trap of false promises of unregulated proxy scheme for higher interest. Your greed will wash away all your retirement corpus and you will be on the mercy of your children. Be aware of this.
Live Case Study: For better Understanding
One of my client approached me for the advice on his Retirement Kitty. He was getting a pension corpus of 50 Lakhs. He was confused where to invest. I suggested him the following way.
- I have asked him to park 15 lakhs in Senior Citizen Scheme for regular income. At an 8.5% interest rate and an investment amount of 15 lakhs, the monthly income is stated to be Rs 10,625 per month for each investor.
- Park 9lakhs in Post Office Monthly Income Scheme. Capital protection is its primary objective and it helps to earn a fixed interest every month.
- I suggested him the following way to use Mutual Funds more effectively. By this way he can make most out of investing in Mutual Funds. Use of mutual fund in more productive way as :
- He can park his Rs 10 lakhs in good quality liquid fund Rs and do SWP(Systematic withdrawal plan) of say Rs 10000 per month or per quarter as per his requirement. These withdrawals can be used for regular expenses or for any special occasion. This arrangement is more tax efficient than FD and rest of the amount will generate more returns compared to bank FD.
- He can park his Rs 10 lakhs in good quality liquid fund Rs and do STP(Systematic transfer plan) of say Rs 25000 per month in good quality Balanced fund which will help him to earn inflation beating returns. This transfer will be done approximately in 3.5 years meanwhile his savings in liquid fund will also generate safe returns. This arrangement will help him to get benefit of Equity and Debt asset class both.
- Now where to invest rest 6 lakhs Rs? It can be invested in either of following 3 options
- Bank Fixed Deposits: FDs are considered safe, liquid, and provide assured interest income. The Best debt vehicle to park retirement corpus.
- Pradhan Mantri Vaya Vandana Yojana – Scheme provides an assured return of 8% p.a. payable monthly (equivalent to 8.30% p.a. effective) for 10 years or
- Immediate annuities.- These are provided by life insurance companies. But the pension or the annuity is currently around 5-6 per cent per annum and is entirely taxable.
The Financial Plan was successfully incorporated and now my client is enjoying his best phase of life, the Golden Years worry free.