Retirement Planning: Seven assured cash flow options for your golden years

Updated: June 30, 2021 8:55 AM

The requirements of a post-retirement life would be to ensure a monthly cash flow and ensure annual increment to the monthly cash flow to take care of inflation.

The average rate of return is 8-10% in the last decade. This scheme provides additional tax deduction up to Rs 50,000 under Section 80CCD(1B).

By A P Singh

Retirement is the onset of a new life free of responsibilities and full of freedom. But to enjoy the beauty of this new phase of life and live it fully, one should be financially free. And this is possible only when the hard-accumulated lifetime savings are put into a well-balanced portfolio that is diversified across asset classes in the right proportion depending on the financial goals.

While being overweight on one asset class puts one at risk, being underweight on another can make an opportunity loss. It is required to understand the risk-reward factors associated with each asset class and build a portfolio, review it at periodic intervals and make necessary changes as and when required.

The requirements of a post-retirement life would be to ensure a monthly cash flow and ensure annual increment to the monthly cash flow to take care of inflation.

Major options available

Pradhan Mantri Vaya Vandana Yojana: It is a retirement-cum-pension scheme for senior citizens with no maximum age limit. This scheme provides an assured rate of return of 8% for 10 years. This scheme is a good option for those who want to get assured returns.

Senior Citizens Savings Scheme: A government-backed scheme, it provides a low-risk, steady stream of income to the elderly along with tax benefits. Retirees can invest up to `15 lakh individually or jointly. It is available across all banks and postal offices. An interest rate of 7.4% is payable for the April-June quarter in the scheme. SCSS is better in terms of liquidity owing to a lower maturity period of five years. Also, money can be withdrawn prematurely from the SCSS account by paying a penalty.

RBI taxable bonds: These are sovereign bonds having negligible risk. Currently, the return offered is 7.15% floating. These are taxable bonds with a maturity period of seven years.

FDs from banks, NBFCs, corporates: As fixed deposits for senior citizens have higher rates with assured returns, they remain the preferred investment options for them. Currently, the highest senior citizen fixed deposit rate is 7.75% offered by Sarvodaya Small Finance Bank for a period of five years.

Annuity plans by life insurers: Annuity plans available from insurance companies include immediate and deferred annuity plans. While immediate annuity starts paying annuity immediately after the lump sum amount is paid to the insurance company, deferred annuity pays the annuity at the deferred date as required by the annuitant.

Public Provident Fund: It can be opened by any Indian citizen for a tenure of 15 years.

This scheme is favourable for retirees as it can be extended indefinitely beyond 15 years for a block of five years. This extension can be with or without fresh contributions. The average rate of return is better than the fixed deposits and it works on the EEE principle, i.e., no tax is payable at the time of investment, rate of return and at the time of withdrawal.

National Pension System: The scheme allows subscribers to contribute regularly to a pension account during their working life. On retirement, subscribers can withdraw 60% of the tax-free corpus and use the remaining 40% corpus to buy an annuity to secure a regular income after retirement. The average rate of return is 8-10% in the last decade. This scheme provides additional tax deduction up to Rs 50,000 under Section 80CCD(1B).

The writer is director, Amity School of Insurance, Banking & Actuarial Sciences

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