There may be two kinds of income for a person who has retired from the working life. The government employees covered under the Old Pension Scheme (OPS) get a lifelong inflation adjusted pension that rises with the level of price rise and revision in pay scales through Pay Commissions. Other persons may generate regular income by investing their retirement corpus in various investment avenues available to senior citizens and other investors.
As the retired government employees get guaranteed regular pension for life long, they may choose any tax-saving option available to save tax as they need not worry about getting increasing income out of investments to keep pace with inflation.
However, the persons getting regular income through investments need to look for ways to enhance their income over years to meet higher monetary requirements to keep pace with inflation. This is because, unlike the retired government employees getting inflation adjusted pension, the return from investments in fixed-income instruments for other retired persons not only fail to rise with the rising price level, but are getting eroded due to cut in the rate of interest on such investments.
With the interest rates lagging the rate of inflation, the capitals invested in fixed-income instruments are gradually losing their purchasing power – especially after paying taxes on interests earned – damaging the prospect of getting higher return from the retirement corpus.
So, while making tax-saving investments, such investors should keep in mind the need of growing their retirement corpus to enhance the earning capacity to fight inflation and maintain their standard of living.
As retired investors rely mostly on fixed-income instruments to generate stable income, they should make the tax-saving investments in such a way that, apart from saving taxes, the capital invested should grow over time and provide them tax-efficient returns.
As tax-saving instruments like Public Provident Fund (PPF), National Savings Scheme (NSC) etc provide similar return like that of other fixed-income income instruments, instead of choosing such instruments again, the retired employees should take some calculated risks and invest in Equity Linked Saving Scheme (ELSS) for long term to ensure growth in their retirement corpus to generate higher income in long run to keep pace with inflation for maintaining their standard of living.
So, while the retired government employees getting inflation adjusted pension have the liberty to invest in fixed-income tax-saving instruments like PPF, NSC, FD etc, other retired persons already relying on fixed-income instruments to generate their income, may not have other options, but to take some risks and choose equity-oriented tax-saving instruments like ELSS to ensure that they don’t compromise their standard of living after failing to match the price rise in the long run.