Saving for retirement is a crucial part of financial planning that every salaried and self-employed individual must prioritize in their life. What makes it so important is the aspect of financial independence and security that comes with it.
However, the success of retirement planning depends largely on the investment instruments one picks for their portfolio. That said, let us take a quick look at the best investment plans for retired or senior citizens that help build a corpus effectively.
What are the Best Investment Plans for Retirement?
An ideal investment option for planning retirement would offer investors a regular income and also helps them accumulate wealth. However, not all investment options offer both benefits. This is why it is important to first identify one’s investment goals and savings objectives and then decide which investment plans would prove most effective in achieving them.
For instance, pensioners who already have a regular source of income do not necessarily need to focus on generating regular income. Instead, they can add mutual funds to their investment portfolio to help them accumulate wealth over the years.
Contrarily, individuals who are not likely to receive any pension could plan their portfolio in a way that will help them generate a regular stream of income.
Once individuals identify their needs and financial requirements that will be adequate to lead a financially comfortable life post-retirement, they can plan their investment in different options.
A. Investment Options for Monthly Income
There are several investment options available in the market that offer a regular monthly income to investors.
Here’s a list of some of the best investment options for pensioners and senior citizens.
Fixed Deposits and Recurring Deposits
These two savings options are quite popular among retired individuals. This is because both FD and RD offer higher interest rates when compared to traditional savings instruments and they are not exposed to market fluctuations like market-linked investment options. Additionally, the interest rates offered to senior citizens are higher than those offered to normal individuals.
The Income Tax Act’s Section 80TTB also states that an interest income of a maximum of Rs. 50,000 p.a for senior citizens is exempted from taxation.
Post Office Monthly Income Scheme
Post Office Monthly Income Scheme or POMIS also offers a regular monthly income, making is one of the best investment plan. The savings plan has a maturity period of 5 years and offers tax benefits. However, the tax server version of POMIS offers tax benefits on deposits up to Rs. 1.5 lakhs and the interest income is also subject to taxation.
Senior Citizen Savings Scheme
Senior Citizen Savings Scheme or SCSS is counted among the best investment plans for senior citizens, especially for those who are looking for a long-term savings plan offering security and returns. The interest rates offered on SCSS are higher than fixed-income investments like fixed deposits and regular savings plans. Additionally, individuals get tax benefits of a maximum of Rs. 1.5 lakh yearly under Section 80C of the Income Tax Act.
The maximum investment amount in SCSS is capped at Rs. 15 lakhs and the scheme has a maturity period of 5 years, which can be further extended for another 3 years. Individuals are also required to add a nominee to their SCSS account so that the accumulated corpus can be transferred to them. Notably, one can easily avail of the scheme at any recognized post office or banking institution in India.
Individuals can use specific investment calculator to determine the estimated returns through each option. They can also compare the profitability of each scheme and pick the best investment plan that suits their requirements the best.
B. Best Investment Plans for Growth
Senior citizens have multiple investment options at their disposal that can help them facilitate the growth of their portfolio and help accelerate wealth accumulation.
These following investment instruments can help retirees generate inflation-adjusted returns and accumulate wealth –
Investing in mutual funds is considered one of the most effective ways of building wealth as the option is known to offer inflation-adjusted tax returns and tax benefits. Individuals can also park their money into the tax-saving mutual fund – ELSS which entitles investors to avail of tax deductions of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act.
However, before investing in mutual funds, individuals should note that the investment option carries a risk aspect and is prone to market fluctuations. This is why, it is key that individuals pick mutual fund options that suit their risk-taking capacity and help generate steady returns. Exposing one’s portfolio to risky mutual funds can defeat the purpose of wealth generation amid market volatility. Hence, it is important to have a balanced approach toward investment.
National Pension System
Individuals between the age of 18-65 years can avail of the National Pension Scheme or NPS. Under the active option, the investment option allows individuals to direct their contribution toward corporate and government securities, and equities. On the other hand, the auto-choice option facilitates asset allocation based on the age of the investor. Notably, senior citizens have the option to extend the scheme’s tenure up to 70 years of age as well.
NPS is also eligible for a tax deduction of a maximum of Rs. 1.5 lakhs per annum under Section 80C. Additionally, Section 80CCD also entitled NPS holders to an additional deduction of up to Rs. 50000 yearly. It should be noted that NPS does not necessarily offer steady returns. However, it helps generate high returns and boost capital by parking money towards equity funds-oriented NPS, which is capped at 75%.
Besides these, several government-backed investment options for pensioners and senior citizens aim to mobilize savings for wealth generation. Based on one’s investment goals and financial capabilities, pensioners can park their money into more than one option to avail a balanced approach.
Such an approach will help spread the risk involved and will ensure a steady flow of income. Having a robust corpus for retired life will ensure that individuals enjoy a comfortable living standard and continue their daily lifestyle without straining their savings.