Retirement planning is undoubtedly essential for everyone, regardless of their current employment status. A smart and personalized approach to retirement helps achieve financial independence and security in later years, long after retirement.
However, a large part of the success of one’s retirement plan depends on the type of investment instrument one adds to their investment portfolio.
In this article, we will discuss a few investment plans that are considered lucrative for retired individuals.
What are the Most Suited Investment Plans for Retirees?
When planning for retirement, it is often recommended to choose investment options that suit their goals and financial objectives. Some retirees may be comfortable prioritizing generating a regular income, while others could focus on accumulating wealth. Once an investor has identified their immediate needs, they can select the investment options that will help them meet their goals.
For example, retired individuals with a regular source of income may not focus on generating additional sources of income. Instead, they may decide to opt for mutual fund investments to grow their wealth and corpus over time. On the other hand, those who do not expect to get a pension may opt to restructure their investment profile to generate a regular flow of income.
Investment Plans to Generate Monthly Income
Senior citizens and retired pensioners have several investment options available that can provide a flow of regular monthly income. Some of the best options to generate monthly income include –
Senior Citizen Savings Scheme
The Senior Citizen Savings Scheme (SCSS) is counted among the best investment options made for senior citizens, especially individuals looking for long-term savings avenue with offers a blend of security and returns. Notably, SCSS is known to offer a higher interest rate than fixed-income options like fixed deposit accounts and traditional savings plans. Additionally, senior citizens are allowed to claim tax deductions of a maximum of Rs. 1.5 lakh yearly under Section 80C of the Income Tax Act, 1961.
To open a Senior Citizen Savings Scheme account, the applicant must be at least 60. The maximum investment amount required to start an SCSS account is Rs. 15 lakhs. The scheme comes with a maturity period of 5 years, which can be extended for another 3 years. Subscribers of the scheme are required to include a nominee in their account, who will become a beneficiary of the plan in the absence of the account holder.
One can open an SCSS account at any recognized post office or banking institution in India, and the process is quite straightforward.
Fixed Deposits and Recurring Deposits
Fixed deposits (FDs) and recurring deposits (RDs) are two of the most popular savings options among retired individuals today. These savings options offer higher interest rates compared to traditional savings accounts and are typically not exposed to any market fluctuations like most market-linked investment plan. Additionally, senior citizens are entitled to higher interest rates on their FD and RD accounts.
In addition to this, Section 80TTB of the Income Tax Act, 1961 entitles senior citizens to a tax exemption on their interest earnings up to a maximum of Rs.50,000 yearly.
Post Office Monthly Income Scheme
Post Office Monthly Income Scheme (POMIS) is a lucrative investment option to mobilize savings for retirees. The scheme provides individuals with a steady monthly income and offers tax deductions on deposits of a maximum of Rs. 1.5 lakhs. However, the interest earned through POMIS is taxable. Notably, the scheme comes with a maturity period of 5 years.
Best Investment Plans for Growth
Senior citizens today have access to multiple investment options that can help them accumulate wealth, grow their investment and savings profile, and achieve their financial goals.
These investment instruments are known to be useful in helping retirees generate substantial inflation-adjusted returns and facilitate wealth accumulation –
Mutual funds are considered to be a popular means to build wealth and grow savings over the long term. These market-linked schemes are known to offer significant inflation-adjusted tax returns and provide investors with tax benefits, such as a deduction to claim up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961 by investing in tax savings schemes like Equity Linked Savings Schemes (ELSS). Investors can use mutual fund investment plan calculator to estimate returns and plan their approach of investing in different options as per requirement.
However, it is crucial to note that mutual funds are not devoid of risks. In fact, they are subject to market fluctuations. This is why it is important to choose a mutual fund that matches your risk tolerance level and personal investment goals. Investing in any risky funds without having a balanced approach can defeat the main purpose of growth and wealth generation.
National Pension System
The National Pension Scheme is a retirement savings plan designed for Indian citizens between the age of 18 and 65. NPS offers subscribers two investment options: active and auto-choice.
In active option, investors can allocate their contributions to any corporate and government securities, and equities. On the other hand, in the auto-choice option, the asset allocation is based on the accountholder’s age. Notably, senior citizens can extend their NPS timeline till they turn 70. The best thing about NPS is that the scheme allows tax deduction for a maximum of Rs.1.5 lakhs yearly under Section 80C of the Income Tax Act, 1961. Also, Section 80CCD of ITA offers individuals an additional deduction of a maximum of Rs. 50,000.
While the National Pension Scheme does not guarantee individuals steady returns, the scheme has the potential to yield high returns in the long term, especially when resources are parked in equity funds, which are capped at 75% of the investment portfolio.
Government-backed investment plans for pensioners and retired senior citizens can help them mobilize savings for the future and accumulate wealth. Pensioners have a variety of options to choose from depending on their personal goals, investment goals, and financial capabilities. By investing in more than one option, pensioners can spread out the risk of their investment portfolio and build a steady income stream.
Notably, having access to a retirement corpus allows senior citizens to maintain their desired lifestyle even after retirement.