Pension planning: Top 5 regular income options after retirement

Updated: Dec 07, 2020 8:47 AM

Senior citizens can check out Pradhan Mantri Vaya Vandana Yojana and annuity plans for guaranteed income

The tenure is five years (lock-in) and can be extended once by next three years.The tenure is five years (lock-in) and can be extended once by next three years.

By Sunil Kadyan

The current life expectancy for India in 2020 is 69.73 and it is increasing every year. The retirement age of the individual in India is generally 60 years. In order to sustain a good standard of living, one needs to plan ahead so as to get a regular income post retirement. The fixed deposit rates in banks are consistently going down and retirees who depend on regular interest in FD are feeling the pinch.

Annuity policy provides a regular source of income to annuitants post-retirement. The premiums to be paid towards purchasing this plan can either be made in a lump sum (single premium) or regular instalments (regular premium) over the defined premium paying term.

Annuity plans
There are two types of annuities— immediate and deferred annuity. In immediate annuity, you get pension immediately after paying a lump sum amount to the life insurer. In deferred annuity, you get pension after a defined time period. The advantage of annuity plans is the regular and guaranteed payout for your entire life. However, the rates offered on these plans are currently on the low side. The annuity rates are not very transparent and are in the 5-6% per annum bracket and are entirely taxable.

Diversify your investments
For a steady cash flow or pension an individual having a lump sum amount at his/her retirement age should explore other investment options also apart from purchasing an immediate annuity plan. The options are as follows:

Senior Citizen Saving Scheme: It is a government sponsored scheme offered by banks and post offices for individuals aged 60 years and above. The current interest rate is 7.40% per annum and its rates vary every quarter. Once invested, the rate becomes constant for the entire tenure. The upper limit for investment is Rs 15 lakh per individual. The payout frequency is quarterly and interest income is fully taxable. The tenure is five years (lock-in) and can be extended once by next three years.

Pradhan Mantri Vaya Vandana Yojana: It’s a guaranteed pension product offered by LIC with death benefit for retirees. An individual aged 60 years and above can invest in it. The current interest rate is 7.4% per annum paid monthly and its rates vary yearly. Once invested, the rate becomes constant for the entire tenure.

The upper limit of investment is Rs 15 lakh per individual for monthly payout and pension amount is fully taxable. The tenure is 10 years with lock-in period.

Post Office Monthly Income Scheme: It is a five-year investment with a 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 6.6% per annum, payable monthly.

Bank FD for senior citizens: It is one of the favourite instruments for senior citizens because of assured interest returns. Banks generally provide 50 basis points more interest rate to senior citizens.

The writer is assistant professor, Amity School of Insurance Banking & Actuarial Science, Amity University

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