Looking for a Regular Income During Retirement? Here Are a Few Investment Options

The major concern of retired individuals or those nearing retirement is how to earn a regular income once their fixed salary income stops. Many people struggle after retirement to not outlive their retirement resources. However, given that 2023 is the year to combat inflation's effects on saving and spending on a daily basis, pension incomes won't be sufficient for retirees to live comfortably in their later years.

Retiring on a budget is challenging for many, especially those living on a fixed income; however, with smart retirement planning, you may possibly be able to live a comfortable retired life. To be able to maintain a consistent income stream and tax advantages during your retirement years, you may consider investing in various investment avenues. After retirement, people typically have a lower appetite for risk and choosing pure market-linked products for a steady source of income may turn out to be risky. Instead, you may think about investment avenues that carry low risk such as government-backed securities providing a fixed rate of return.

The high-interest rates currently prevailing in the economy may provide an opportunity for retirees to generate decent gains by investing in fixed-income products with low to moderate levels of risk. Still, some due diligence is required to choose wisely an investment option that provides regular income for retired individuals. Let me help you with that...

An individual might receive various end-of-service payments upon retirement, including Employees' Provident Fund (EPF), gratuities, etc. These payouts total a significant sum of money. Once your regular monthly income ends, it wouldn't be wrong to say that the retirement corpus is a sacred bucket of money. However, you cannot afford to make mistakes with this corpus.

Your retirement involves two major goals; first, it should ensure a regular income and second, given your life expectancy, your retirement corpus should last for a good 20-30 years. Remember, post-retirement, you lose the fixed income source, but your expenses will continue and may increase as you age, especially medical expenses. Thus, making worthy investments in retirement avenues is crucial for a blissful retirement.

Here's a list of available fixed-income investment options which may help you fulfil your retirement goals:

1. Senior Citizens Saving Scheme (SCSS)

The Senior Citizen Saving Scheme (SCSS) is a scheme for retirees backed by the government.

Eligibility - Individuals or retirees above 60 years of age can open an SCSS account. You can open more than one SCSS account, either by yourself or a joint account with your spouse. You can open an SCSS account either at an authorised bank branch or at a post office. However, Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to open an SCSS account.

Investment Amount - The minimum deposit is Rs 1,000 and the maximum is Rs 30 lakh. The deposits can be made in multiples of Rs 1,000. Since you are a senior citizen, you can invest Rs 15 lakh, and if your spouse is also a senior citizen, then another Rs 15 lakh can be invested under their Permanent Account Number (PAN).

Return on Investment - Individuals who open an SCSS account get an interest on the principal deposited amount at a rate fixed by the government. They will receive a quarterly interest against their deposited amount. Interest payments will be credited to an individual's account on the first date of April, July, October, and January every year. Currently, the rate of interest for Q1 FY 2023-24 is at 8.2% p.a.

Maturity - The maturity period of SCSS is 5 years. However, individuals can extend the maturity period for 3 more years by submitting an application, which should be given in the 4th year.

Tax Implication -Interest is taxable in the hand of the depositor. Senior citizens can claim a deduction of up to Rs 1.5 lakh under Section 80C, for investing in the SCSS.

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2. Post Office Monthly Income Scheme (POMIS)

This scheme is popular in almost all Indian domestic households, especially among the elder generations. The post office provides investors with a monthly income plan where they can receive interest payments.

Eligibility - A POMIS account can be opened individually or jointly, and a minor over the age of 10 or a guardian acting on behalf of a minor can open a POMIS account in their name. As the name suggests, you can invest in this scheme from any post office.

Investment Amount -A minimum of Rs 1,000 and amounts greater than Rs 1,000 can be used to start this account. A joint account can contain up to Rs 9 lakh as against a maximum balance of Rs 4.5 lakh for a single account. Each joint holder has an equal investing portion in a joint account.

Return on investment -The scheme offers an interest rate of 7.40% for Q1 FY 2023-24 payable monthly (at the end of each month). The interest amount can be auto-credited into the depositor's savings account or through an electronic clearance service.

Maturity - The tenure of POMIS is 5 years. The account can be closed after five years from the date of opening. However, premature closure before one year is not allowed. Similarly, 2% is deducted from the principal amount if the account is closed between 1 and 3 years and 1% for 3 and 5 years. In case, the depositor passes away before the maturity period, nominees can file a claim.

Tax implication - Interest is taxable in the hand of the depositor.

3. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

This was launched in 2017 as an investment scheme that provides regular income to senior citizens and retirees. The Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a risk-free instrument like SCSS

Eligibility - Individuals above the age of 60 are eligible to participate in this scheme.

Investment Amount - Individuals can buy the scheme by paying the purchase price at a minimum of Rs 1,56,658 (for Rs 12,000 annual pension) to a maximum amount of Rs 14,49,086 (for Rs 1,11,000 annual pension) under the annual pension option. In the case of the monthly option, the price ranges from Rs 1,62,162 (Rs 12,000 annual pension) to Rs 15 lakh (Rs 1,11,000 annual pension). The total amount for all the policies held under the PMVVY scheme by a senior citizen cannot exceed Rs 15 lakh.

Return on Investment - The policy provides 7.4% interest per annum. Here, you have monthly, quarterly, half-yearly or yearly payout options to choose from.

Maturity - The Pradhan Mantri Vaya Vandana Yojana has a 10-year duration.

Tax implication - The pension amount received is however taxed as per the tax slabs applicable to the taxpayer. A senior citizen purchasing PMVVY is eligible to claim a deduction of up to Rs 1,50,000 on the deposit amount under Section 80C.

Apart from this, there are various corporate and bank fixed deposit schemes that offer you a regular monthly income. Earlier, fixed deposits were unable to provide decent returns that could even match the inflation rate, decadal low FD interest rates were a cause of huge financial stress for people like senior citizens whose primary source of regular income comes from FDs. Nevertheless, banks and NBFCs (Non-banking financial institutions) are now offering better interest rates that retirees may consider. However, you need to carefully evaluate the investment options based on your suitability with the risk profile and investment horizon.

[Retirement Calculator]

You see, before deciding where to invest your retirement corpus to sustain a regular income in your sunset years, it is imperative to estimate how much income you would need for your regular day-to-day expenses. Once that is established, you may curate a proper mix of government-backed investment returns as well as variable-return instruments to generate a regular income.

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.

She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.