Retirement is an important stage in your life. Everybody, whether self-employed or salaried, expects to secure their lives post-retirement. This article discusses everything you need to know about various investment options post-retirement for senior citizens.
So, where should a retired investor put his hard-earned lifetime savings to fetch a regular income and also manage one’s household expenses? There are five popular investment options for senior citizens that one may explore and diversify across them to keep liquidity, safety and returns under control.
1. Senior Citizen Saving Scheme (SCSS)
Any individual who are 60 years and above can open SCSS account. In case of VRS or Superannuation, the eligibility is 55-60 years. In case of retired defense personnel, the eligibility is 50 years. SCSS is government scheme i.e. it has sovereign guarantee and 100% risk free. It has tenure of 5 years which can be extended for 3 years, provided such extension is done within 1 year after the maturity period.
Current SCSS interest rate is 7.4%. However it would be reviewed every quarter and might get changed. One can lock this now before June, 2021, as the interest rate might fall in 2nd quarter of 2021. Interest received under SCSS is taxable as per income tax slab applicable to the person. In case the interest received is beyond Rs 50,000 during fiscal, necessary TDS would be deducted. SCSS is one of the best risks free investment plan for Senior Citizens.
2. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Pradhan Mantri Vaya Vandana Yojana (PMVVY) has already been extended up to 31st March 2023. The extension of the PMVVY scheme will help senior citizens as the entry age in the scheme is 60 years. For the first financial year i.e. up to 31st March 2021, the Scheme was providing an assured pension of 7.40 per cent per annum payable monthly and thereafter to be reset every year.
The annual reset of the assured rate of interest with effect from April 1st of the financial year in line with the revised rate of returns of Senior Citizens Saving Scheme (SCSS) up to a ceiling of 7.75 per cent with a fresh appraisal of the scheme on breach of this threshold at any point. The maximum amount of investment is capped at Rs 15 lakh.
On survival of the pensioner to the end of the policy term of 10 years, amount invested (Purchase price) along with final pension installment shall be payable.
3. Bank fixed deposits (FD)
Bank fixed deposits have always been a popular and the first choice for most senior citizens. Bank FDs are flexible when it comes to choosing the interest rate payouts as they offer monthly, quarterly, half-yearly or annual interest income to the FD holders. Not all front line commercial banks are offering anything above 6 per cent rate of interest. However, depending on the bank and tenure, most Small Finance Banks are offering an interest rate of above 7 per cent on some of their tenure. The senior citizens are offered an additional 0.5 per cent on the deposits by all banks.
In addition, some banks like SBI, ICICI Bank and HDFC Bank offer special deposits to senior citizens on deposits of 5-years and above. Under SBI We care Deposit’ for Senior Citizens, 0.3 per cent is additionally payable on 5 Years and above tenor.
4. National Pension System (NPS)
The National Pension Scheme can be availed by individuals between the ages of 18 and 65 years. Senior citizens can extend the tenure up to 70 years of age as well. Under Section 80C, taxpayers are eligible for deductions up to Rs 1.50 lakh per year on the investment made towards NPS.
Similarly, under Section 80CCD, individuals are also eligible for additional tax benefits up to Rs 50,000 a year. The investment made towards the NPS can be directed towards equity, corporate and government securities, depending on the individuals’ choice under the active option. However, you can opt for the auto choice where asset allocation happens depending on your age.
Though NPS does not offer a steady interest income, the scheme generates excellent returns and your investment can grow at a faster rate by orienting your NPS towards equity funds. However, the maximum NPS investment in equity is capped at 75%.
5. Post Office Monthly Income Scheme (POMIS)
The Post Office Monthly Income Scheme (POMIS) has tenure of 5 years and once invested the interest rate continues to remain the same till maturity. Currently, for the quarter ending June 2021, the interest rate is 6.6 per cent per annum. One can invest a maximum of Rs 4.5 lakh in a single name while a maximum of Rs 9 lakh can be deposited in POMIS in a joint name.
6. Mutual Funds
Investing in mutual funds is by far the best decision you can make to build wealth over some time. Start investing in mutual funds and enjoy the twin benefits of – Inflation-beating returns and tax savings.
You can invest in ELSS, a tax-saving mutual fund that qualifies for Section 80C tax deduction, up to Rs 1.5 lakh per year. Invest in top-performing mutual funds handpicked by our experts and enjoy inflation-beating returns from the comfort of home.
7. Floating Rate Savings Bonds
With tenure of seven years, interest rates under this scheme keep varying during till maturity. The coupon rate for the first coupon period, payable on January 1, 2021, was fixed at 7.15 per cent. The coupon/interest of the bond is reset half-yearly on every July 1st and January 1 of every year. The coupon rate will be linked/pegged with the prevailing National Saving Certificate (NSC) rate with a spread of 35 basis points over the NSC interest rate.
8. Annuity Pension Plans
There are several immediate annuity pension schemes offered by LIC as well as by private life insurance companies. The returns would range between 5% to 6%, however these are guaranteed till the end of the tenure.
If we take LIC Jeevan Akshay VII Pension plan, this provides immediate pension. Under Plan A, it provides Rs 81,000 per annum pension for an investment of Rs 10 Lakhs i.e. 8.1% for life long for a 60 years individual. One should note that while pension payout is high, there is no return of purchase price. Pension Income is taxable as per income tax slab applicable to the person.