The only drawback is that you don’t have a regular income now. Most people fall back on their retirement funds in such a scenario. While that is a fair option, these funds might deplete fast, especially if you draw on your Provident Fund to meet pre-retirement financial goals. Your carefully made retirement plans will be tested by market volatility and inflation, and you might even run into difficulties managing your monthly expenses. It’s quite normal to worry – “how do I manage my expenses? How can I earn a regular income during my retirement?” These questions are even more salient now, with growing lifespans. The Economic Survey 2018-19 projected that the post-retirement lifespan of Indians above 60 would double from 8.6% in 2011 to 16% by 20411.
These are all valid worries, but with a robust personal finance plan in place, you can take care of most of these worries. The important thing is to find ways to maintain a regular income after retirement, which will power your goal-planning and help you enjoy retired life.
Here are some useful tools you can use to generate income in retirement while minimising risk:
1. Senior Citizen Savings Scheme (SCSS)
This scheme was specially created to help seniors build a retirement fund to manage their monthly expenses. It is offered by banks and post offices for people who are 60 years and older and looking to pursue investment for retirement planning. You can expect an interest rate of 7.4%2 per annum with a quarterly payment frequency. While the rates renew every quarter, they are frozen for the rest of the tenure after investment. The interest from SCSS is completely taxable. Under Section 80C, you can claim deduction for invested capital up to Rs. 1.5 lakh (subject to TDS). To maximise benefits, you can invest up to Rs. 15 lakh each for you and your spouse.
2. Mutual Funds
Returns on mutual fund investments are a great way to accumulate wealth during retirement. There are several categories and sub-categories of assets that might help you earn the desired returns. Systematic Investment Plans (SIP) are a good option when considering mutual fund investment for retirement planning. Opting for SIPs in equity mutual funds can help you average the buying cost by taking advantage of stock market volatility. You can choose the mutual fund scheme that works best for you based on your risk appetite.
Another option is the SWP (Systematic Withdrawal Plan). In this case, you can withdraw amounts at regular intervals. You may also get the option to withdraw fixed amounts every month. Say, you’ve invested Rs. 6 lakh in a mutual fund scheme. It will allow you to withdraw Rs. 50,000 every month for a fixed period of 12 months. An important thing to bear in mind while making these investments is to balance your income and expenses well. As a retired person, parking your investments in short-term debt funds may also be a good idea.
3. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
This government-supported scheme is designed for retirees. It is offered by the Life Insurance Corporation of India (LIC) for people who are 60 years and older. The interest rate is 7.4%3 per annum and is capped at 7.75% at all times. Although these rates renew every year, they are frozen after a year of investment is completed. The payment frequency can be monthly, quarterly, half-yearly or annually, with a maximum pay-out of Rs. 9,250. The pay-outs are entirely taxable, though, and you will not be able to claim deductions for invested capital.
You are allowed to withdraw money prematurely, but only in the case of emergencies such as critical illnesses affecting you or your spouse. In case of death, the purchase cost is refunded to the beneficiary. If you and your spouse are both above 60 years, you can claim up to Rs. 18,500 per month together.
4. Post Office Monthly Income Scheme
This small savings scheme allows you to earn a monthly income. It is offered by post offices at a rate of 6.6%3 per annum (rates are renewed every quarter). The lock-in period for this scheme is 5 years, and you can expect monthly pay-outs. The interest income from this scheme is completely taxable. TDS is not applicable and you won’t be able to claim deductions for invested capital.
The investment limit is Rs. 4.5 lakh per person. If you’re going for a joint account, you can invest up to Rs. 9 lakh. While you can withdraw prematurely, there are penalties of 2% and 1% for withdrawal within 3 years and after 3 years, respectively. In case you haven’t withdrawn after the account matures, the amount can earn interest for up to 2 years.
5. RBI Saving Bonds
These are floating rate bonds that can only be availed through digital channels. They are available to anyone residing in India. They are offered by the Reserve Bank of India (RBI), with a tenure of 7 years. The rate is 7.15%4 annually with monthly pay-outs (rates renew every 6 months).
Pay-outs are released on a half-yearly basis—every 1st January and 1st July—and are completely taxable. TDS is not applicable and you won’t be able to claim deductions for invested capital. There is no maximum limit for investment.
Remember that you must invest in multiples of Rs. 1,000.
There are specific withdrawal rules for specific senior groups:
- If you’re between 60-70 years, you can withdraw after 6 years
- If you’re between 70-80 years, you can withdraw after 5 years
- If you’re above 80 years, you can withdraw after 4 years
You cannot trade these bonds in the secondary market or use them as collateral for bank loans.
Retirement is a chance to enjoy the wealth accumulated through your entire life – but it’s also important to generate more wealth, so that you do not deplete your finances and can live stress-free. The stakes are high, so engage an advisor for professional financial planning to reduce error and maximise your benefits.