Senior Citizens Investment Options 2019

In the last article, we discussed the instruments where senior citizens should not invest? In this article, we will discuss about the investment options for senior citizens in 2019.

If you want to read the previous article, you can click on the below mentioned link

Senior Citizens – Where They should not invest?

Here is a consolidated list of investment options for Senior Citizens.

1. SCSS
2. PMVVJ
3. POMIS
4. PPF
5. FD from strong/stable banks
6. Liquid mutual Funds
7. Ultra Short term debt Funds
8. Equity Funds
9. Health Insurance – Yes, it is an investment!

Senior Citizen Savings Scheme (SCSS)

If you want regular income, Senior Citizen Savings Scheme can your best bet. The interest rate is highest among the small savings scheme. Current interest rate is 8.6% per annum and it changes quarterly. But, once the amount is invested, the interest rate remains same for the duration of 5 years.

The scheme is for 5 years and the same can be extended for a further duration of 3 years. The maximum investment amount is 15 Lakhs. You can invest another 15 Lakhs in spouse’s name.

The minimum age for opening the account is 60 years. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits.

The interest is paid quarterly, on 1st working day of April, July, October and January. Interest is taxable. You can open SCSS in Post office and most of the banks.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY is another source of regular income for Senior Citizens. The scheme is offered by LIC only. The interest rate is better than the other small savings scheme. It guarantees interest at the rate of 8% for 10 years. You can opt for yearly/half yearly/ quarterly/ monthly income as per your choice. The interest is taxable.

The scheme has a maturity term of 10 years and it cannot be extended after 10 years. The maximum investment amount is 15 Lakhs. You can open account for both husband and wife and invest 15 Lakhs in each account.

The minimum age for opening the account is 60 years and you can invest in this scheme till 31^st March 2020.

Post Office Monthly Income Scheme (POMIS)

POMIS is another option of regular income if you have exhausted your limits in SCSS and PMVVY. The maximum limit to invest is 4.5 Lakhs per account, though with a joint account, the limit can be increased to 9 Lakhs.

The interest rates are slightly lower than the SCSS and PMVVY schemes. The current interest rate is 7.6% in the scheme which changes quarterly. Interest is taxable.

PPF – Why you should continue it even after retirement?

PPF is an evergreen investment option where the interest rates are better than other small savings scheme. The investment, interest and maturity are tax free. Other advantage is that it can be extended after 15 years any number of times in a block of 5 years. You have 2 options while extending the PPF account

1. Extension with contribution
2. Extension without contribution

If you have the money to invest and want to take the tax benefits under Section 80C, opt for the extension of PPF with contribution. You can invest any amount between 500 -1.5 Lakhs in a year. There is a limitation here that you can withdraw 60% of the amount and the number of withdrawals is 1 per year. This can be used a way to ensure tax free withdrawal every year during the retired life. You can also use it for availing tax deduction under Section 80C during the retirement days.

If you do not want to contribute in future, you can opt for extension without contribution option. You can withdraw upto 100% of amount whenever you want, but again the withdrawal is restricted to 1 per year.

FD from strong/stable banks

Senior citizens have an advantage of getting better FD rates. The interest earned is taxable in FDs but only as per your tax slab. It is better to calculate the amount which can be invested in FDs without attracting much tax liabilities. After all, income upto 5 Lakhs in a year is tax free now.

You can opt for monthly interest pay out, if you need regular income.  Otherwise, opt for cumulative option. Also, do not go for that 1% extra returns by investing in co-operative banks. As I had written in the previous article, that 1% extra returns will not make differences in total corpus but it can definitely eat your entire retirement savings. Return of capital is more important than the return on capital.

Liquid mutual Funds- SWP for monthly withdrawal

Systematic Withdrawal Plan (SWP) is another option to ensure regular fixed income.  Under this you can mandate the mutual fund house to credit a fixed amount to your account on any fixed day of your choice every month.

In this, you invest a portion of your retirement savings in Liquid mutual funds and opt for SWP. The fund house will redeem the required number of units and pay you the mandated amount on the fixed day every month.

It is better to invest some amount in liquid mutual funds and withdraw through systematic withdrawal plan for your regular income.

Ultra Short term debt Funds

Why only liquid funds and ultra short term debt funds and why not other debt funds. The reason is simple, all debt funds carries credit risk and interest rate risks. Ultra short term funds too carry the some risks but they are comparatively less risky than the other debt funds.

Liquid Funds &Ultra short term debt funds can help you in tax savings as you get the benefit of indexation. If you need withdrawal after 3 years, these funds are better than FDs in terms of taxation.

Equity Mutual Funds

Investing in equity mutual funds is risky. It very much depends on your risk profile.  If you have never invested in equity instruments during your active life, it is better to avoid investing in equity instruments after retirement. If you are a very conservative investor, who can not take the volatility of the market, it is better to avoid this.

But, if you have experience of investing in equity earlier, you can think of keeping 15-20% of your retirement portfolio in equity mutual funds. This can be gradually re-balanced with age.  Equity can give higher return than debt options in the long term. But it can be highly volatile in the short term. Equity investment should not be considered as an option to make good for the shortage of your retirement kitty. It can be risky.

But if you are lucky enough to have a bigger portfolio, which is more than required for your retired life, you can think of higher exposure to equity, if you are fine with volatility.

Health Insurance

You can invest in the above products as per your choice but there is no choice in case of health insurance. If you already have one, it is good. Please keep the health insurance policy in force by regular payment of premium well before the due date. But if you do not have one, purchase it immediately. Do not take it as expense, it is the best investment for the long term. Even one hospitalization can make a big dent in your retirement corpus, what if it happened multiple times.

Purchase a high value health insurance policy covering you & spouse. If your children are employed, ask them to add both of you in their corporate health insurance also.  With this two layer protection, you can meet most of the health care expenses.

Still keep a medical emergency fund to take care of the extra expenses which are not covered by any insurance.

Conclusion

Again, purchase a health insurance policy first if you do not have one. Do not invest too much in equity instruments. Insurance as investment is a big NO. Choose your investment instruments wisely. Avoid toxic investment options like Day Trading, Futures & Options etc. If not chosen wisely, chances of you becoming dependent on your children would be high. When you have lived your entire life with pride, do not lose it now by choosing wrong instruments.

Feel free to write if you have any questions, till then

Happy Investing & Happy Retired Life.