Monthly income options for senior citizens

Senior citizens look for a comfortable, trouble-free, and enjoyable retirement life. After years of hard work and financial planning, they build a desired retirement corpus. Post-retirement, a person's lifestyle and monthly income requirements both change. In retirement, the return on investment from the retirement corpus should be adequate to meet monthly expenses.

Let’s consider some simple numbers. Suppose you have built a retirement corpus of Rs 50 lakh. Your average monthly expense is Rs 30,000 (Rs 3.6 lakh per annum) and your post-retirement life expectancy is 20 years.

As per these calculations, your retirement fund would last you 13 or 14 years. For the remaining life tenure, you could experience serious financial problems. But if you invest in the right instrument and create the right-sized corpus, you would have sufficient income over 20 years.

If you are looking for a monthly income by investing the retirement corpus, then there are some good investment products that we will discuss here.

MUTUAL FUND: MONTHLY INCOME PLAN AND DEBT FUNDS

Depending on the investor’s risk profile, there are several options available in mutual funds. Since we are exploring avenues for senior citizens, they have the option of investing in debt funds and balanced funds (such as MIPs). Using a Systematic Withdrawal Plan (STP), they can redeem a fixed amount from their MF every month. The returns from any MF would vary and be subjected to various risk factors. As per the Crisil AMFI Fund Performance Index, we’ve seen that yearly average of 10-year returns  from MIPs was 9.8 per cent  and 8.59 per cent for debt funds.

PRADHAN MANTRI VAYA VANDANA YOJNA

In the starting months of 2017, the government announced the launch of the PMVVY for senior citizens. Under this scheme, senior citizens will get an assured interest of 8 per cent a year irrespective of market movements. The policy term can go up to 10 years and the pension is credited monthly, quarterly, half-yearly, or yearly. If the pensioner dies during the policy term, then they would be entitled to the get the purchase price. If the pensioner survives the term, they are entitled to get the purchase price along with the last pension amount. The minimum age for buying PMVVY is 60 years. The maximum pension allowed under this scheme is Rs 5,000 per month if investment amount is Rs 7.5 lakh.

SENIOR CITIZENS SAVING SCHEME

SCSS is one of the favourite choices of retired persons for a regular monthly income. You can invest in SCSS through the post office or an authorised bank. Today, the interest rate on SCSS is 8.4 per cent a year, compounding quarterly (w.e.f. April 1, 2017, as per India Post website). The maximum deposit allowed in SCSS is Rs 15 lakh and interest above Rs 10,000 in a fiscal is subject to TDS. The normal tenure is five years but can be extended by three years. The rate remains fixed for the entire tenure, so if rate at the beginning of the investment was 8.4 per cent, it would remain unchanged irrespective of new rates. The investor is eligible to tax benefits under Section 80C.

BANK FIXED DEPOSITS

For conservative investors who wants high liquidity and low risk, bank deposits are a good option. You can invest in bank fixed deposits with a monthly interest payout to your bank account. As of today, banks offer a rate of around 7 per cent to senior citizens, but higher rates can be found after a bit of research before investing. While there is high safety in a bank deposit, bank interest earnings are subject to taxation as per the investor’s tax slab.

ANNUITIES

Insurance companies offer annuity plans for providing a regular income to the investor. In an annuity plan, the investor has the option to buy a fixed annuity or a variable annuity. A fixed annuity provides constant returns while a variable one may give a return higher or lower than fixed annuity depending on the market situation. An annuity plan also provides life cover for either the husband, or husband and wife both, depending on the type of plan bought by the annuitant. Under a joint annuity, after the death of the primary applicant, the second annuitant continues to enjoy the annuity till their death. The annuity rate at present is around five per cent and it is subject to income-tax. This option is suitable for investors with a conservative mindset and who are averse to other monthly income options. Annuity plans lack liquidity, and the returns often don’t compare favourably to mutual funds, SCSS, or even fixed deposits.

FINALLY…
Apart from the above-mentioned schemes, senior citizens can also explore investment opportunities in National Pension Scheme and Postal Monthly Income Scheme. For best results for low-risk investors, it is best to diversify the retirement corpus in different instruments keeping in mind their return prospects, risk, and liquidity.