Finally it’s time to put your feet up for good. You can pursue that forgotten hobby and take that dream holiday. But you need money to pursue these activities and to live out your retirement years in comfort, especially when families are opting for a nuclear set-up. If you think your retirement corpus will tide you over, give inflation a thought. Believe us when we say – all your savings for retirement won’t be enough. You have to identify channels that will secure you a monthly income.
The way to go about it is to invest a part of your retirement corpus in plans that have a short-tenure, offer good returns, don’t strain your liquidity, offer tax benefits and will beat inflation to the finish line. We’d be living in a utopian world if we were to find one plan that offers all of the above. But sadly that isn’t so. Therefore you must diversify your funds in multiple plans that together offer these benefits.
Let’s begin with:
Senior Citizens Savings Scheme (SCSS): This scheme offered by the Government of India is a favourite with many. It offers an interest rate of 8.6 per cent, compounded quarterly, and can be taken by any person 60 years or more. Those between 55 and 60 years can also opt for this scheme, provided they have retired on superannuation or under the Voluntary Retirement Scheme (VRS). There are certain conditions you must keep in mind if you fall in this bracket. First, you must open this account within a month of receiving all your retirement benefits; second, the amount deposited cannot exceed what is received as part of your retirement benefit.
Among other features, the scheme has a maturity period of 5 years which can be extended to 3 more. You can also close your investment prematurely after one year by paying a penalty charge of 1.5 per cent. The charge drops to 1 per cent if you close it after 2 years. As for the deposit amount, you can deposit anything between Rs. 1,000 to Rs. 15,00,000.
What’s more, you have the option to open a joint account with your spouse. But if you are looking at an individual account, knock yourself out; you can open as many as you like. What about tax benefits? Investments made under this scheme qualify for tax sops under Section 80C of the Income Tax Act. But keep in mind, TDS will be deducted on an interest amount more than Rs. 10,000 p.a.
Post Office Monthly Income Scheme (POMIS): This is the go-to scheme if you are looking at an investment that guarantees regular monthly income. The maximum amount an individual can deposit in this scheme is Rs. 4,50,000 and Rs. 9,00,000 for a joint account. You can also open multiple accounts in various post offices, provided the total amount deposited in all the accounts doesn’t exceed the maximum limit.
How do you receive a monthly income? Well, an interest of 7.80 per cent, payable monthly, can be auto drawn to your savings account held in the same post office as the scheme. It’s the interest component of your investment that makes up your monthly income. Quite smart, isn’t it! Just like SCSS, this scheme too comes with a maturity period of 5 years. But then there are times when you might feel strapped for cash. In such cases, you can prematurely withdraw your investment after one year for a penalty charge of 2 per cent, in case the withdrawal is being made before the end of three years. If you are withdrawing funds after the completion of three years, the charge drops to 1 per cent.
Post Office Time Deposit (POTD): It’s a close cousin of Fixed Deposits offered by banks, and works on the same principle. You deposit an amount for a certain period and on maturity you are returned that amount with interest. The maximum term for POTD is 5 years. If you do not withdraw your funds at maturity, your deposit automatically gets renewed for the period selected originally. For example, if you had taken a time deposit for 1 year, it will automatically get renewed for another year upon reaching maturity (that is, of course, if you don’t withdraw it). For auto renewal, the interest rate prevalent on the date of maturity will be taken into consideration. Did you know, if you sign up for a 5 year term deposit your investment becomes eligible for a tax benefit under Section 80C? The minimum investment for this deposit is Rs. 200 and there is no maximum limit. The interest rates for POTD increase with an increase in tenure. The interest rate on a 5-year Time Deposit is higher than on a 2-year Time Deposit.
Fixed Deposits (FD): Fixed Deposits work like Time Deposits and are offered by private and government banks. Fixed Deposits bear lower interest rates than company deposits, but they are safer. Safety should be the first thing on your mind when making post-retirement investments. A good way to gauge the safety of Fixed Deposit options is to look for the rating. Anything with an AAA rating is a safe bet. You can compare various FD option and their interest rates at a glance on the BankBazaar website.
Additional Reading: How Much Do I Need When I Retire?
Monthly Income Plans (MIP): If you are looking for good returns that can be converted to a handsome monthly income, explore MIPs. What are MIPs? An MIP is a type of Debt Mutual Fund and are linked to the market. They offer great returns and also tax benefits. But as with any market linked investment, you must be ready to bear some risk. What the risks are worth? The returns on MIPs have hands down beaten inflation in the last few years. When you invested money in an MIP, the fund managers will channel 15-20 percent of your money in equity and the remaining amount will be funnelled into corporate bonds and government securities.
Non-convertible Debentures (NCDs): If your cash flow looks healthy you can look at NCDs. What are NCDs? They are bonds issued by companies looking to raise funds and often come with good returns. However, there is one catch! This investment vehicle is not entirely risk-proof. You are trusting your money to a company and if it fails to do well you will lose your money with it. But if you still have the resources and an appetite for risk, give NCDs a try. Thoroughly research the company you invest in it. Study the income statement and balance sheets. If the prospects look bright, take the plunge. This investment tool, however, is recommended only if you have enough resources and have a higher risk appetite.
Reverse Mortgage: This is an excellent option for those low on liquidity and high on assets. Reverse mortgage allows you to pledge your house to a bank, which in turn will pay you the value of the house in equated monthly instalments. A good part about this deal is that you can continue living in the house even if you outlive the payment. What about your heir? Well, when you are no more, the bank will make the first sale to the legal heirs. If your heirs do not have the means to purchase the house, it will be put up on the block to third parties and the difference from the sale will be paid to your heirs.
You have at least seven smart investment vehicles to your rescue in your retirement. Keep liquidity at the top of your mind before making an investment. You need ready cash the most at this age. Do not invest a larger chunk of your funds away. Keep a comfortable portion with you and invest the rest. Even when you consider reinvestment, be mindful of your cash balance. Another point you must remember is that your need to maintain your monthly expenditure even during retirement. Hence, anything that offers you a regular flow of income is a good deal. An investment option that gives you returns on a monthly basis will cut it for you. You needn’t ask anyone to support you financially.
Explore these options and pick wisely!