How to Generate Income during Retirement
Retirement is truly the golden period of your life. This is the time when you are finally free from all responsibilities. Your children have most probably grown up and settled down, which means that you can explore a different side of you. However, it also marks the end of your earning period, and you no longer have regular paychecks coming in every month. Therefore, to provide for your monthly expenses post your retirement, you need to invest in a retirement investment plan early on that provides you with a fixed income every month. Also, you need to take care that this income does not attract any additional tax liabilities.
Keeping this in mind, here are a few investment options that you can opt for post your retirement:
- Unit-Linked Insurance Plans (ULIP)
Even after retirement, your income is subject to inflation and equities provide higher, inflation-adjusted returns than any other asset. Therefore, after assessing your risk profile, you can invest in equity funds through your unit-linked insurance plan. The fund-switching feature available in ULIPs allows you to move your units into debt funds without attracting any taxes. This is useful especially in times of market-corrections, and it allows you to safeguard your fund value.
- Senior Citizens Savings Scheme (SCSS)
This is one of the most popular investment plan for retirees, and is available only to senior citizens. You can avail it from a post office or a bank if you are above the age of 60. If you are an early retiree, then you can invest in SCSS within one month of getting your pension funds. The SCSS has an interest rate of 8.6% p.a. which is payable quarterly and is fully taxable. It has a 5-year tenure that can be extended by 3 years after maturity. You can also withdraw money prematurely. It offers low, stable returns, and you can invest up to Rs. 15 lakh, in more than one account. SCSS is also eligible for tax benefits under Section 80C.
- Post Office Monthly Income Scheme (POMIS)
Another retirement pension option is the POMIS, which has a tenure of 5 years. The current interest rate of this scheme is set at 7.8% p.a., fully taxable. The post office monthly income scheme has the maximum limit of Rs. 4.5 lakh individually, and Rs. 9 lakh in joint ownership. You can also transfer the interest from the savings account into a recurring deposit in the same post office. However, this scheme is not eligible for tax benefits.
- Bank Fixed Deposits (FDs)
One can also invest in an FD, which is a flexible option in terms of the tenure. It is reliable and safe, and currently has a 7.25% p.a. interest rate; some banks also offer an additional 0.25-0.5% interest p.a. to senior citizens. If you wish to save tax, you can invest in a 5-year tax saving bank FD without early withdrawal; that is eligible for tax benefits under Section 80C.
- Tax-Free Bonds
You can invest in tax-free bonds that are issued by government-backed institutions like IRFC, PFC, NHAI, REC, HUDCO, etc. These bonds are long-term investments that mature after 10, 15 or 20 years, with tax-free interest and no TDS. This investment option is also low on liquidity.
- Immediate Annuities
You can also opt for immediate annuity schemes of life insurance companies. It is a fully taxable option and the interest rate is 5-6% p.a. However, in these schemes the corpus used to buy the annuity is non-returnable. If you wish to build your own portfolio, then investing in this scheme might not be advisable; instead it will be better to diversify across multiple different investments.
Nowadays, you don’t just need a large retirement corpus; you also need a way to generate income during retirement. To meet that requirement, you can choose a ULIP that offers maturity benefits in monthly instalments. It is dynamic insurance-investment plan that offers market-linked returns.