The moment you cross the threshold of 60 years, you are branded a senior citizen, and apart from all the privileges you receive – from concessions on bus and railway tickets to extra interest rates on fixed deposits – you also have to deal with retirement blues such as reduced income and dependency on your children or other relatives.
The best way to ensure a steady income after retirement is to invest in good pension plans while you are working. However, it is never late to start investing for a better retired life. Here are 5 investment options senior citizens can consider:
- Fixed Deposits in Banks and Post Office
- Pension Plans
- Senior Citizen Saving Scheme
- Equity-Linked Savings Scheme (ELSS)
- National Savings Certificate (NSC)
Fixed Deposits (FD) or term deposits can be started in any bank or post office. These are one of the most secure and guaranteed-returns schemes available with financial institutions. The criteria for beginning an FD are simple and straightforward. Senior citizens get 25 to 50 basis points higher rate of interest on fixed deposits than ordinary citizens, in most banks. The minimum tenure required to start an FD is 7 days and the maximum is 10 years. You can put as much amount in the FD account as you want, starting from Rs. 100.
You can either choose to have the interest accrued on the FD deposited to your savings account periodically or withdraw the whole amount – principal plus interest – at the time of maturity. If you start a fixed deposit in the bank you already have an account with, things will be easier. Post Offices in Indian offer term deposit schemes of 1 to 5 years, and higher interest rates than bank FDs. If required urgently, you can withdraw the amount before the end of the term on payment of a penalty.
The interest received from fixed deposits is taxable, and the interest rates are different for each tenure. So if you plan to invest your money in an FD, do your research properly and find the scheme that gives you maximum benefits.
In an ideal world, everyone should have a pension plan apart from other investments. Pension plans are a good instrument to ensure a regular source of income one you stop working. There are many kinds of pension plans available. In one kind, you can invest a large amount in a single deposit, and in another type, you can deposit smaller amounts regularly. Either way, you can start getting a regular income even after retirement based on the total amount your plan has accrued. The minimum investment is as low as Rs. 200 in some plans. These plans offer 3-7% interest, depending on the company you hold a pension plan with. Lock-in periods could be as low as 3 years, depending on the age at which you start the plan and the institution you’re buying the plan from.
EPFs and PPFs are also types of pension plans, where you make regular deposits ad earn between 8.1% to 8.8% interest. After the lock-in period – 15 years for PPF and post-retirement or when you stop working for EPF – you can withdraw the amount in a lump sum. However, to get tax benefits on this withdrawal, you need to re-invest a part of the provident fund in an annuity plan. Annuity plans are similar to pension plans wherein you will get a guaranteed amount for the rest of your lifetime. But choose an annuity plan with caution, as most such plans offer a low interest rate. You also have to pay service tax on annuity investments – at the rate of 3.5% for multiple premium annuities and 1.4% (from the fiscal 2016-17) for single-premium annuities.
Senior Citizens Savings Scheme:
A saving scheme specially tailored to the needs of senior citizens is available both in banks and post offices. The maximum amount you can deposit in this account is Rs. 15 lakh and the tenure is 5 years, with an option to extend it by an additional 3 years. Interest rates on Senior Citizens Savings Scheme is higher than that in many other options – between 8.5% to 9.5%. However, while the investment made in Senior Citizens Savings Scheme is tax-deductible under Section 80C, the interest earned on it is taxable.
Equity-Linked Savings Scheme (ELSS):
ELSS is a market-linked savings plan that can give you excellent returns if the right kind of investment portfolio is chosen. ELSS is not senior citizen-centric, but is an excellent investment choice anyway, because of its market-linked nature. It also gives you ample tax benefits – the amount you invest in ELSS is exempt from taxation under Section 80C, no long-term capital gains tax is applicable on sale of these funds, and the tax on dividends is also not applicable. The minimum investment is Rs. 500 and you can invest as high an amount as you want in ELSS. You can choose the tenure of your ELSS, and the lock-in period of the fund is just 3 years. You cannot make a withdrawal before the lock-in period ends.
National Savings Certificate (NSC):
NSC is another Post Office-based savings scheme that offer good returns and are a safe form of investment. You can buy an NSC certificates in the multiples of Rs. 100 every month for 5 years, with the minimum contribution being Rs. 100. There is no ceiling on investment. NSC gives an interest of 8.1% currently. Though there is no tax deduction at source and the invested amount is tax-deductible under Section 80C, you have to pay tax on the interest earned. Premature withdrawal of the amount is not permitted under this scheme.
It is necessary to control your income and expense after retirement in order to ensure a sustainable lifestyle. The best way to allow yourself sufficient income after you quit working is to invest in various savings and pension instruments and keep a diversified portfolio. Look for long-term plans and schemes that give you high rate or returns if your objective is retirement planning.