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7 Investment Avenues for Your Post-Retirement Portfolio - Outside View by PersonalFN

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7 Investment Avenues for Your Post-Retirement Portfolio
Sep 6, 2018

Shekhar, a computer engineer by profession, was planning to retire soon.

He had been setting aside all his monthly savings in bank FDs, and was having EPF and gratuity accounts too, which he thought would suffice to take care of his post-retirement needs.

But, as he was getting closer to his retirement, there were three questions on his mind that somehow disturbed him.

'How long will I survive?'

'Will my savings last long enough to support me during retirement?'

'Will it sustain me till the end of my life and support my family after I'm gone?'

Walking home one evening, he was deeply engrossed with his thoughts on life post-retirement and meets his friend Rahul on his way.

Rahul, a financial planner, retired a year ago and is enjoying his retirement life. So, Shekhar decided to discuss his concerns with him.

Unfortunately, most of us begin to worry about our post-retirement life at the brink of retirement phase.

Rahul explained that when retirement begins, income stops, and expenses continue. The years from the start of retirement till demise are unpredictable, however financially preparing for this time of our lives is imperative for our survival. He concluded that our investments/savings act as a steady source of income during our retirement phase.

[Read: Step-By-Step Approach To Retirement Planning]

With the old conservative saving strategy, the money cannot last long as it cannot beat the rising cost of inflation. It will be over before you take your last breath and that you missed the train of the power of compounding because you did not invest in equities in your youth.

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But now that Shekhar had completely missed planning for his retirement, should he go overboard and invest all his money in equities? Maybe he will be putting his entire savings at risk, as he is a couple of years away from his retirement.

The solution Rahul gave Shekhar was to diversify his investments across avenues suitable for retirees, once he attains his retirement year.

[Read: Is Over Diversification Good For Your Mutual Fund Portfolio? Know Here]

Rahul continued that most of the investment schemes for retirees are government backed. So, the risk involved is very less and to invest one must comply with the KYC norms.

But one needs to be cautious, as not all small saving schemes are able to beat the inflation and may hamper one's retirement.

Pick your post-retirement schemes carefully, so that it takes care of not only the regular source of income but also provides decent growth in the capital on your retirement corpus.

Here is the list of investment avenues one may consider for a blissful retired life.

  1. Senior Citizen Savings Scheme (SCSS)

    The Senior Citizen Saving Scheme allows you to invest your hard-earned retirement corpus in a safe product and offers the benefit of quarterly interest payment (payable on the first working day of April, July, October and January). You can invest a one-time fixed sum in the SCSS, for a steady source of income.

    It is a suitable investment that can be held by any retiree (single or joint with spouse) aged 60 years and above for a term of 5 years. An individual of the age between 55 years and 60 years who have retired on superannuation or under VRS can also open an SCSS account.

    The scheme currently earns a decent interest of 8.3% per annum.

    The total investment in the SCSS shouldn't exceed Rs 15 lakhs and not below Rs 1,000.

    The principal amount invested is eligible for a benefit under Section 80C of the Income Tax Act, but up to Rs 1.5 lakhs p.a. However, on premature withdrawal, a deduction charge is levied.

    Under the SCSS, the interest earned is taxable as per the prevailing slab rates. However, TDS is applicable only if the interest income exceeds Rs 10,000 in a financial year.

    On maturity of the SCSS account, you have the option to extend the account for another three years. But you need to apply within one year of maturity by applying in the prescribed format.

  2. Post Office Time Deposits (POTD)

    Post office Time Deposits work similar to fixed deposits. You can invest your money in these deposits for a pre-specified time horizon; i.e. 1-year, 2-year, 3-year, or 5-year tenure.

    You can open the account either in a single name, or jointly, or even in the name of a minor (through a guardian) who has attained the age of 10 years.

    The minimum investment amount is Rs 200, with no upper limit. However, the investment amount over Rs 1.50 lakh will not be eligible for any tax benefit.

    A 5-Yr POTD currently earns an interest of 7.4% p.a., which is calculated quarterly but paid annually. The premature withdrawals are permitted only after a year from the date of deposit, subject to a penalty in the form of reduced interest rate.

    The investment in a 5-year POTD qualifies for a tax deduction of up to Rs 1.50 lakh p.a. under Section 80C. But the interest earned on your investments is taxable under Section 80C.

  3. Recurring Deposit (RD)

    Recurring Deposit, a facility offered by Post Office and Banks, can help you gradually save for your future goals by allocating a small sum regularly.

    5-Year Post Office Recurring Deposit Account offers you an interest of 6.9% per annum, compounded quarterly. Although the interest is calculated quarterly you will receive it only at maturity.

    It is very convenient to invest in RD by cash or through cheque.

    While the investment period in RD offered by banks varies from 6 months to 10 years the ones offered by post office come with a tenure of 5 years, with an option to continue for another 5 years on maturity.

    You can open the account either in a single name, or jointly, or even in the name of a minor (through a guardian) who has attained the age of 10 years.

    In case of 5-Year Post Office RD, one withdrawal up to 50% of the balance is allowed after completion of one year. It may be repaid in one lump sum along with interest at the prescribed rate. Nowadays most banks allow premature withdrawals on RD with a penal rate of interest charge.

  4. Post Office Monthly Income Scheme (POMIS)

    Post Office MIS is considered a preferred monthly investment avenue for individuals who seek to earn a regular income, especially after retirement. Any person in his individual capacity or jointly (by two or three adults) can invest in this scheme. However, post office MIS comes with a maturity period of 5 years.

    You can invest in a multiple of Rs 1,500/- with a maximum amount of Rs 4.5 lakh for a single account holder, while joint account holders can hold up to Rs 9 lakhs in an account.

    At present, the interest earned on a POMIS is at 7.30% p.a. which is compounded annually but paid monthly to take care of your monthly income.

    While you can hold any number of MIS accounts in any number of branches of the post office, it does have a few restrictions. The total investment by an individual in an MIS account cannot exceed Rs 4.5 lakhs, including his share in joint accounts. This restricts the number of accounts an individual can open, either individually or jointly.

  5. National Savings Certificates (NSC)

    Issued by the Post Offices in India, the NSC is optimum for post-retirement earnings as there is minimal risk involved. NSCs have a fixed lock-in period of 5 years and offer tax benefits too.

    The minimum investment amount required is in denominations of Rs 100 to Rs 10,000 with no maximum limit to investment.

    While you may not be able to invest in NSC just like SIP in a mutual fund, you need to make a separate purchase of NSC's every month, if you wish.

    Currently, the interest rate on a 5-year NSC is 7.60% p.a. compounded annually, but payable at maturity; i.e. you will receive accrued interest along with principal on maturity.

    Premature withdrawal is not possible in case of NSC unless there is an occurrence of an unfortunate event like the death of the holder, holder of certificate forfeiting them through a pledge, a court of law ordering the pre-mature withdrawal of NSC, etc.

    The interest on NSC accrues annually but is deemed to be reinvested under Section 80C of IT Act. The deposits along with the accrued interest on NSC qualify for deduction u/s. 80C, subject to a maximum limit of Rs 1.50 Lakhs in a financial year. There is no TDS on the interest earned on an NSC.

  6. Kisan Vikas Patra (KVP)

    It is a small savings scheme which doubles the invested amount in approx. 118 months (9 years and 10 months), at the current rate of 7.3% p.a.

    The interest income earned on KVP is taxable as per the tax slab of the investor and TDS at 10% will also be deducted. Moreover, the amount invested in KVP is not eligible for a benefit under Sec. 80C.

    While one needs to invest a minimum of Rs. 1,000 in KVP ??and in multiples of Rs. 1,000 thereafter, there is no limit to the maximum amount of investment. KVP is issued in various denominations of Rs 1,000; Rs 5,000; Rs 10,000 & Rs 50,000.

    You can prematurely withdraw from NSC, after 2 and ½ years from the date of issue. The amount you receive on such premature withdrawal depends on the period of your holding. This feature makes KVP liquid vis-a-vis PPF and NSC.

  7. Mutual Funds (MFs)

    Investment in mutual funds are linked to the market and are a little riskier as compared to the ones mentioned above. However, the impact of near-term volatility can fade over time and offer you a decent growth on invested capital.

    If you are prudent, choose stable large-cap or hybrid funds with a suitable time horizon in mind. The investments in mutual funds can be later used as a monthly source of income through Systematic Withdrawals Plans offered by them. The returns from such funds may help you cope with the inflation during your retirement years so that the value of your retirement corpus does not diminish in value.

    [Read: What Is A Mutual Fund? - A Guide to Mutual Fund Basics]

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To conclude...

Shekhar regretted not investing earlier in life but learnt about various post-retirement schemes to erase some of his worries.

Although Shekhar missed the benefit of planning his retirement early, you can still manage a peaceful retirement by taking guidance from a certified financial planner.

I hope you too wouldn't want to repeat the same mistake as Shekhar did and do plan your retirement early for a blissful retired life. Reach out to PersonalFN's Financial Guardians, on 022-61361200 or write to info@personalfn.com. You may also fill in this form, and soon our experienced financial planners will reach out to you.

Author: Aditi Murkute

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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