After working for several decades, a retiree looks forward to receiving retirement benefits that would typically include provident fund amount, gratuity and other superannuation funds. These retirement funds need to be deployed in such a way that it helps to meet the regular income requirements in the final years of one’s life. Therefore, a judicious mix of post-retirement investments is what one must focus on that not only provides a regular income but also ensures safety and liquidity of money, besides minimising tax liability.
Here are a few investment options for retirees to diversify their retirement kitty.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Exclusively available with Life Insurance Corporation of India (LIC), Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a one-time lumpsum investment scheme for 10 years with an option to receive a regular income either monthly, quarterly, half-yearly or annually, in the form of pension. Anyone above 60 years of age can invest a maximum amount of Rs 15 lakh (Rs 30 lakh along with spouse) in PMVVY. For FY 22-23, the PMVVY will provide an assured pension of 7.40% per annum payable monthly. This assured rate of pension shall be payable for the full policy term of 10 years for all the policies purchased till March 31, 2023.
Senior Citizens Saving Scheme (SCSS)
Senior Citizens’ Saving Scheme (SCSS) has a five-year tenure, which can be further extended by three years once the scheme matures. One may open more than one SCSS account but the investment limit for all accounts taken together is `15 lakh. Currently, the interest rate is 7.4% per annum, payable quarterly and is fully taxable. Investment in SCSS is eligible for tax benefits under Section 80C and the scheme also allows premature withdrawals but then the tax benefit gets reversed.
Floating Rate Savings Bond
Floating Rate Savings Bond, 2020 (Taxable) comes with a tenure of seven years. Interest is paid twice a year, on July 1 and January 1 each year. For Floating Rate Savings Bond, the rate of interest is equal to the interest rate on NSC plus 0.35%. The interest rate will keep varying during the tenure of the scheme depending on the interest rate of NSC. There is no upper limit on investment in Floating Rate Savings Bonds.
Post Office Monthly Income Scheme (POMIS) Account
POMIS is a 5-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is set each quarter and is currently at 6.6% per annum, payable monthly. The interest rate remains fixed for the entire tenure. The interest earned in POMIS may be credited to a post office savings account and a mandate may be provided to transfer the funds to recurring deposits in the same post office.
Bank fixed deposits (FDs)
Currently, interest rates on bank fixed deposit (FD) are around 6.5% and are looking to go up. Therefore, instead of locking funds for a specific duration, one may spread the amount across different maturities through ‘laddering’ to manage the ‘re-investment risk’. When the shortest-term FD matures, renew it for the longest duration and continue the process as and when various FDs get matured.
Senior citizens get an additional interest of 0.5% per annum on their deposits, while some banks provide Special Deposits offering much higher rates on specific tenure. For those retirees looking to save tax as well, the five-year tax saving bank FD could be an option to consider.
Living on a pension
Pradhan Mantri Vaya Vandana Yojana purchased in FY22-23 provides an assured pension of 7.4% per annum for the full policy term of 10 years
For Floating Rate Savings Bond, the rate of interest is equal to the rate of interest of NSC plus 0.35%
Investment in Senior Citizens Saving Scheme is eligible for Section 80C tax benefits