Financial Planning: How can Senior Citizens Earn a Regular Income?

Financial planning plays an important role to secure your life after retirement. While looking for investment options, senior citizens should focus on those instruments that have the potential to deliver both income and growth. Read on to know about the various investment options for senior citizens

Publish Date: February 22, 2018

By: Sandhya Kannan, Head – Content

What is your dream retirement like? Traveling around the world? Writing a book? Starting a small business or just living a peaceful life? Dreams can be endless, but to make these dreams come true, you require proper planning. Proper financial planning goes a long way! Here’s a financial planning guide that will help you to manage your finances post-retirement. Let’s scroll down & start planning!

Financial Planning for Senior Citizens

Judicious planning for retirement not only secures your future, but also provides you with a regular income. It allows you to live a financially secure & healthy retired life. LIfe expectancy data by the World Bank shows that life expectancy in India increased from 62.58 years in the year 2000 to 68.56 years in the year 2016.

A long lifespan has a direct impact on your financial preparedness for post-retirement. While many Indians prefer to invest in traditional savings instruments, these instruments may not always enable you to beat the rising inflation. The cost of living increases with an increase in the rate of inflation. So, a long lifespan and an inflation rate of 5-6% can make living a decent life after retirement very expensive. A right financial plan and good choice of investments can help you to fulfil your goals and live a financially secure life after retirement.

Know how financial planning differs with people in different life stage. Visit here

Financial Planning Components for Senior Citizens

Your investments should be based on these major components of financial planning:

• Financial Goals - Goals vary from person to person. For some, post-retirement goals can be playing with grandchildren, buying a home at the cliff side, publishing a book, etc. Clarity in goals is very important.
• Risk Appetite - This component speaks about your ability to take risks to meet your financial goals. For example, are you willing to invest 20% in equities (which is very risky) to meet your goals? Will you be able to cope with dips in your investments? Therefore, you should figure out your risk appetite and plan and invest accordingly. Factors that can influence your risk appetite include your age, your ability to recover from the loss of capital, and your health.
• Investment Tenure - This depends on the timeline that you have set for your goals. Generally, when you list down your goals, you should have a timeframe to turn them into reality. Focus on the timeframes for your goals and decide your investment tenure accordingly.

These 3 components of financial planning play an important role in fulfilling your desired goals.

Retirement calculator: This helps you to plan your financially secured retired life.

Highlights of Pre-Retirement Planning

To fulfil your retirement goals, you need to start investing from an early age of your life. Here are some tips that you can follow at various stages of life to start planning towards your retirement:

Around your 20s - As a starting point for planning your retirement, you can sign-up for the Employees’ Provident Fund (EPF). EPF is one of the retirement options in India. Also, you can start exploring other investment options like equities and mutual funds. Remember, when it comes to retirement planning, the earlier you start investing, longer is the time available for your investments get to grow, especially in the case of investments in instruments such as equity funds and equity stocks.

In your 30-40s - Continue the investment practice that you adopted in your 20s. Start immediately, if you haven’t already inculcated the savings habit. Also, by now most people get married and have a family to support. As your responsibilities increase, so should your investments to meet all your needs. You can buy insurance plans for your family. Also, by the time you are in your 40s, you can add short-term investment options like monthly income scheme, etc.

In your 50s - By the time you reach at your 50’s, the investments you made over the years, will start giving you results. So, you can slowly reduce your investments in high-risk instruments and reinvest those funds in low-risk instruments that are not affected much by the market volatility.

60 and above - At this age, your retirement planning comes into action. At this time you can invest your money in various retirement schemes that are mentioned below and earn a regular income.

Check the seven points that cover the broad areas of financial planning. Read here.

Senior Citizen Investment Options for Regular Income

1.   Senior Citizens Saving Schemes (SCSS)

SCSS is a saving scheme specially designed for senior citizens. Any person above 60 years of age can avail this scheme either from a bank or the post office. SCSS has a tenure of 5 years, but it can be stretched to 3 years more. Currently, the interest rate on SCSS is ?8.7%?,? ?which is one of the highest return on investments available in recent times.? You can invest a minimum of Rs 1,000 and a maximum of Rs 15 lakh in an SCSS account. You can also open more than one SCSS account. A senior citizen can avail a tax deduction of Rs.? ?1.5? ?lakh under section? ?80C of the Income Tax Act.

2.   Post Office Monthly Income Scheme (POMIS)

POMIS is one of the best options for someone to wants a regular monthly income. Currently, the scheme offers an annual interest rate of 7.8%. The minimum amount one can deposit in POMIS is Rs 1500 and the maximum is Rs 4.5 lakhs in a single account and Rs. 9 lakhs in a joint account. In POMIS, the interest on the deposited amount is paid on a monthly basis, and the interest earned in POMIS scheme is completely tax-free.

3.   Tax-Free Bonds

Tax-free bonds are issued by the government to fund money for a project. Since tax-free bonds are backed by the government, they are usually risk-free. The interest returns are guaranteed and tax free. The maximum amount that can be invested is up to Rs 10 lakhs. The investment tenure for these bonds can be anywhere between 10 to 30 years, depending on the length of the project. The interest rate of tax-free bonds usually ranges from 7.3% to 7.5% per year. Some of the government-backed institutions are Indian Railway Finance Corporation Ltd, National Highways Authority of India, Rural Electrification Corporation Ltd, Power Finance Corporation Ltd, etc. These institutions have a good safety rating, which is a good thing for retirees.

4.   Mutual Funds

Mutual funds can be a very good option for retirees. Though it doesn’t give out a monthly payment, but it increases the value of your invested money. Here are some options of mutual fund investments that senior citizens can explore:

• Systematic Withdrawal Plan (SWP)
  Mutual funds with a SWP work perfectly for retirees who can invest a good lump sum amount. The plan allows investors to withdraw a specific amount at regular intervals. You can set the fixed amount and the frequency for monthly withdrawal from the fund.
• Dividends on Debt Funds
  Retirees can invest in debt funds, which promise to pay off dividends. The dividend is nothing but a part of the profit earned by the mutual fund house. Debt funds may offer lower returns, but it is a safe investment.

5.   Immediate Annuities

Look for a life insurance policy that offers instant annuities, so that as a retiree, you can benefit from the quick income for various needs. The current annuity is around 5-6% per annum, and you must also note that these are taxable. Therefore, annuity products cannot be used as the sole option for investment after retirement, but this can be a good option for diversification of your investments. Look for annuity products that offer options catering to your personal needs.

Conclusion

Retirement is that phase of life where you start a new adventure. So, start your financial planning soon and gift yourself a secure retired life!

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