Retirement is the age when your earing period comes to end, either willingly or by force. Not everyone opts to end their earning period, some prefer to work even after their retirement age or some resign their job even before. It is up to a person, as to what sort of retirement they want, but sure everyone looks for a safe and secure retirement without worrying about expenses and bills.
As a retiree, everyone wants to keep their retirement fund away from any tax liability and get a regular income. But to build a retirement portfolio with a blend of fixed income and market linked investment is a big task for retirees. It is always better to plan your retirement in advance and invest carefully in various plans to have a safe, secure and fixed monthly income.
Here are 5 best investment options for retirees, to have a better retired and no earning period in their life. These investment plans provide for regular monthly household expenses and build a retiree portfolio which is a perfect mix.
1. Senior Citizen Saving Scheme (SCSS)-
Senior citizen saving scheme (SCSS) is a must-have for the retiree’s investment portfolio. This scheme is only available to the senior citizens or early retirees. SCSS can be obtained by anyone above 60 from a post office or a bank. The retiree needs to invest in SCSS within three months of receiving their retirement funds. This scheme has five-year tenure, and this can be extended by three years after the scheme matures.
The interest rate in SCSS is 8.6 per cent per annum which is payable quarterly and fully taxable. The rates for this scheme are set each quarter and linked to the G-sec rates with a spread of 100 basis points. The rate remains stable for the entire tenure, once the investment is done. As of now, SCSS is offering the highest post-tax returns among all other fixed income taxable products.
The maximum limit for investment is Rs. 15 lakh and a person may open more than one account. There is sovereign guarantee on the capital invested and interest payout. The investment under this scheme is eligible for tax benefits under section 80C and also allows premature withdrawals.
2. Post Office Monthly Income Scheme (POMIS) Account-
This scheme is a five year investment plan. The maximum capital limit under this scheme is Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is fixed each quarter and the current interest rate for this scheme is 7.8 per cent per annum which is payable monthly. The investment under this scheme does not provide any tax benefit and the interest is fully taxable.
You do not have to go to the post office each month; the interest amount can be directly credited to your savings account in the same post office. You can also direct to automatically transfer the interest from the savings account into a recurring deposit under the same post office.
3. Bank Fixed Deposits (FDs)-
This is one popular choice among the retirees. This provides safety and fixed returns that go well with the retirees, and since it is easy to operate, it turns out to be more reliable option. But the interest rate is falling over the last few years. The current interest rate is around 7.25 per cent per annum for a lock-in period ranging from 1-10 years. Senior citizens get an extra 0.25-0.5 per cent per annum interest rate, depending up on the bank. Few banks even offer around 7.75 per cent rate of interest to seniors on deposit with longer lock-in period.
This scheme provides flexibility in terms of tenure in comparison to SCSS and POMIS. This allows the investor to spread their amount across different maturities through ‘laddering’ rather than locking their funds for a particular duration. This scheme also manages the ‘re-investment risk’. When your shortest term FD matures, you can renew it for the longest duration and can continue the process as and when your various FDs get matured. While renewing the duration, make sure that your regular required income is met, and deposits are spread across various maturities and vehicles and institutions.
If you look to save tax, you can go for five-year tax saving bank FD. The investment under this scheme qualifies for section 80C tax benefits. But, this deposit will have a lock-in period of five years and early withdrawal is not possible.
4. Mutual Funds-
Invest your retirement funds in equity backed products, when there is likelihood of the non-earning period to last for a longer time. Your retirement income will be subject to inflation even during retirement stage.
You may allocate a certain percentage into equity mutual funds, depending on the risk profile. It is better to stay away from thematic and sectoral funds. It is better to generate stable returns rather than focusing on high but risky returns.
5. Immediate Annuities-
Under this scheme, the pension or annuity is currently around 5-6 per cent per annum, and is fully taxable. However, the amount you use to purchase the annuity is non-refundable. There are various pension options available under this scheme, like pension for lifetime for self, after death to spouse and post that to the heirs.
Retirement is your age to relive your bucket list, do not let it past with stress and financial issues. Plan your financial portfolio in advance and enjoy a happy and dream-like retirement. You can choose form the above mentioned plans to be secure and wise in the end.