Choosing the right instrument for those post 60 years of age can get tricky sometimes. However, as long as you know your priorities, you should pick the smart options to invest in.
Once retired, people not only want a hassle-free life, but also want to avoid shelling out excess money in the form of tax. Thus, retired personnel, most of whom consist of senior citizens, do not reflect a high risk taking capacity that one would possess, when much younger. So choosing the right instrument for those post 60 years of age can get tricky sometimes. However, as long as you know your priorities, you should pick the smart options to invest in so you can lead a hassle-free retirement life.
Here are some of the best options to choose from when investing your life-long savings. The retirement age here has been kept as 60 for the investments.
1. Senior Citizen Saving Scheme
This is a top pick among senior citizens as these schemes are tailor-made for them and available both in banks and post offices. Interest rates on Senior Citizens Savings Scheme, which is 8.3 per cent per annum currently, is higher than that in many other options like FDs and the amount is tax-deductible under Section 80C. The interest earned on it is, however, taxable.
The typical Senior Citizen Saving Scheme (SCSS) account extends up to 5 years and upon maturity can be subsequently extended for an additional 3 years. The depositor is allowed to make one deposit into this account, an amount that is a multiple of Rs 1,000 and not extend beyond Rs 15 lakh. There no limit on the number of accounts that can be opened, but the total amount in all the accounts must not breach the maximum investment limit.
In extreme financial crisis, your SCSS account can be closed and the money withdrawn. This option only applies after the account has existed for a minimum of one year, and a penalty will be deducted.
2. Health Insurance
One of the biggest tax-saving provisions given to senior citizens is for their health insurance premiums. A lot of people consider health insurance to be a waste, but in reality given the steep hospitalization costs, it is better to have this aspect covered than digging into your life-long savings when you are retired.
The Union Budget 2018 gave an impetus to senior citizens to invest in such plans by further increasing the deduction limit under Section 80D for senior citizens from Rs 30,000 to a maximum of Rs 50,000. To top it, if a senior citizen is paying for their very senior parent’s insurance, they can get an additional Rs 50,000 exemption.
Additionally in respect of certain critical illness like malignant cancers, chronic renal failure, haemophilia and thalassemia, from Rs 60,000 exemption, every senior citizens can now claim up to Rs 1 lakh exemption under Section 80DDB.
Equity Linked Savings Schemes (ELSSs) are often not considered a suitable investment for senior citizens and retired persons, which is a myth. While equities may be volatile, if one invests for an average of three to five years, equity investments are actually moderate in risk and high in returns. Also when you take inflation into account, bank FDs and similar deposits generate returns that are barely higher than the inflation rate.
For tax-saving, ELSS is the only category in mutual funds which qualifies for exemption under Section 80C. Although a 10% LTCG tax is applicable on gains above Rs 1 lakh in a financial year, it is still the lowest among similar capital assets as debt or liquid funds. Moreover, ELSS has a lock-in period of only three years, scoring in the liquidity factor too, compared to other long-term options like tax-saving FDs, PPFs and more.
4. Tax Free Bonds
Don’t know what to do with your lump sum funds when retired? Tax-free bonds may be the answer. These bonds, issued by government-supported organizations, are sold or bought on the stock exchange as they are listed securities. Just remember not to treat these like FDs as they have a longer gestation period such as 10 years 20 years and so on. Hence, one should plan investing a little earlier, may be a decade or five years before retiring, to avoid waiting for too long for them to mature.
Although there is no tax-exemption given to such investments, its biggest boon is that the interest earned is tax-free. However, if there is any capital gain on transferring them on exchanges that will be taxed.
Just remember that retirement money needs to be spent carefully, as you may not have the appetite for digesting large losses. So, whatever option you choose, make sure you have enough to spare for regular expenditures and only then invest the surplus.
(The writer is CEO at Bankbazaar.com)