Retirement for many people is the time to sit back and enjoy the fruits of labour. Having worked all their lives chasing career goals, now is the time to spend with loved ones and pursue dreams.
To do this, you need secure and assured income even after retirement. Retirement benefits like gratuity and pension will not last long and may not be enough. Exhausting these benefits without planning for the future is not wise, and investing these funds so that the corpus can grow as well as provide regular returns, to ensure financial security, is the best way to go. Smart investment plans with properly calculated strategies ensure smart retirement and peace of mind.
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The question arises as to what the options are on investing after retirement? Let’s take a look at some of the best investment options available for senior citizens, so that you can make an informed decision on where to park money and earn returns.
Senior Citizens’ Saving Scheme is an option that can be included in retirement planning. It is available to people over the age of 60. An exception to this age limit is, if the person opts for voluntary retirement between the age of 55 and 60. However, such persons must avail this scheme within a month of receiving retirement funds. The scheme can be availed at a post office or at designated branches of commercial banks like State Bank of India (SBI).
A person can open more than one account under the scheme, and the maximum investment allowed is Rs 15 lakhs across accounts. Investments can be made with a minimum of Rs 1,000 and multiples thereafter. The scheme has tenure of 5 years, but can be extended by 3 years at maturity.
The investment provides an interest of 8.7%, which is higher than most other fixed income instruments like Employees Provident Fund (EPF), Fixed Deposits (FD) and government bonds. Interest is calculated annually and paid out at the end of each quarter. SCSS also provides tax benefits to the investor, who can claim the investment as a deduction from taxable income under Section 80C of the Income Tax Act up to Rs 1.5 Lakhs a year. Additionally, Tax Deducted at Source (TDS) is applicable if the investment earns an interest more than Rs 50,000 annually.
POMIS accounts can be opened at any post office either individually or jointly by two or three persons. The maximum amount of investment in a POMIS account is Rs 4.5 lakhs individually and Rs 9 lakh in joint ownership. The interest rate is 7.3% which is payable monthly and the interest rate changes each quarter.
The investment and interest do not provide any tax benefits to the investor under Section 80C, but do give convenience on maintaining the account. Once the account is opened, there is no need to visit the post office daily as the earnings are automatically credited to the Post Office Savings Account and can be transferred from savings account to the recurring deposit of the same post office.
Fixed deposits give a guaranteed return on the investment. FDs provide a guaranteed interest rate between 4 - 8.75% a year. Senior citizens can avail the Senior Citizen FD and earn higher interest than regular FDs. The interest rate for senior citizen FDs is nearly 0.5% higher than regular FDs. The tenure for the fixed deposit ranges from 1 day to 10 years, so the investor has an option to choose the life on his deposit.
Tax benefits can be availed by opting for the 5-year tax saving FDs, on which, the investment can be claimed as a deduction under Section 80C. However, these FDs provide a lower rate of return when compared to non-tax saving FDs and the funds are locked in for 5 years and can’t be withdrawn before maturity. Generally, short term FDs offer higher rates of return than long term FDs. Some banks also allow loans to be taken against the FD, in case of emergencies.
Mutual funds are one of the most popular investment options for anyone looking to earn extra income. Mutual Funds provide opportunities for investors of all risk appetites to choose the allocation and proportion which matches their requirement.
Equity mutual funds provide the highest returns of all investments but at highest risk. For anyone wondering how much of money to allocate to equity, an old rule of thumb is to subtract the age from 100, and invest that percentage in equity. For example, a person aged 35 must invest 65% (100 – 35) of his money in stocks. This rule is only a guideline and not binding on the investor as the ultimate decision depends on the required returns and risk appetite. Taxation on equity mutual funds is 10% on an amount above Rs 1,00,000 of capital gains, if the holding is for more than 1 year called Long Term Capital Gains (LTCG)) and 15% for less than a year (Short Term Capital Gains (STCG)).
Debt mutual funds have lower risk as compared to equity MFs and provide lower returns. For senior citizens, a stable income is advisable over high and volatile returns. For this reason, allocating the funds into debt or balanced mutual funds would be wise. For debt funds, the applicable tax rate is 20% on capital gain, if the holding is more than 3 years (LTCG) and for less than 3 years (STCG), tax is applicable based on the investor’s tax slab. Debt MFs provide an advantage over Fixed Deposits which are taxed at marginal rates.
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