5 Investment Buckets to Receive Regular Income Post Retirement

During a young age, all of us find post-retirement life very uncertain. We work hard to save enough so that we can live comfortably during our golden years. In addition to saving money, it is also necessary to make use of the magic of compounding over the span of 30-35 years so we will have a reasonable corpus for the later part of our lives. This is why experts suggest that you start retirement planning early in the day.

There are many options available that boast of providing an attractive retirement corpus. Say, you chose the best product out there in the market and have managed to grow your wealth to the max. What next? You retire. How would you manage to secure your wealth and receive monthly income at the same time?

Well, choosing the right regular income paying product is as important as choosing the right product to build your retirement corpus. Here are five investment products you can choose to receive regular income as well as secure your wealth. Take a look:

1. Bank Fixed Deposits

A bank fixed deposit (FD) is the most popular investment product among risk-averse investors as well as senior citizens. Most banks offer FDs with a monthly payout option where the interest accrued on the lump sum deposit will be credited to the savings account linked with the FD account. Senior citizens can get easy access to this interest income through debit cards and ATMs.

Senior citizens also receive an additional interest of up to 0.5% over and above the rates applicable to regular customers. In addition, longer tenure and a big corpus have a higher probability of translating into a higher interest rate. 

In case you don’t essentially require this interest income, you can go for the interest re-investment option that has the potential to increase your corpus to the next level through compounding. FD accounts also come with easy liquidity options if you require the funds for any emergency. Further, loan and overdraft facilities are also available.

In terms of tax benefits, TDS is not applicable up to an interest income of Rs.50,000 per financial year for senior citizens.

2. Pradhan Mantri Vaya Vandana Yojana

This government-backed pension scheme is offered by Life Insurance Corporation (LIC). The minimum entry age for the scheme is 60 years. You are allowed to make an investment of up to Rs.15 lakh. By investing this amount, you will receive a guaranteed annualised return in the form of pension over the 10-year tenure of the policy. 

The pension can be paid out in monthly, quarterly, half-yearly, or yearly frequencies. Note that the interest rate for this policy is set by the government and is updated every year. At the end of the 10-year tenure, the invested amount will be paid out along with the last pension instalment to be paid. 

Good news is that the government has extended the availability of the scheme until 31 March 2023. Subscribe to the scheme before it is no more available.

3. Senior Citizen Savings Scheme (SCSS)

This is another government-backed scheme that is dedicated to retirees aged above 60 years. Individuals who have retired on superannuation or who have opted for a voluntary retirement scheme (VRS), in the age group of 55 years-60 years, are also eligible to open this account. 

However, there is a restriction on the amount you can deposit in the SCSS account, i.e. Rs.15 lakh. For the quarter from 1 January 2021 until 31 March 2021, the interest rate applicable is 7.4% p.a. The accrued interest gets compounded annually and is paid out in quarterly intervals. You can conveniently access this interest income through your savings account.

Irrespective of your deposit amount in the account, you can claim an income tax deduction of up to Rs.1.5 lakh under Section 80C. Further, TDS is not applicable up to a limit of Rs.50,000 per financial year on the interest earned. 

Though everything looks good, you can only profit from this account for five years. On request, the tenure can be extended for another three years!

Also Read: How Early Equity Investments Power Your Future?

4. Systematic Withdrawal Plan

If you have been investing in mutual funds, choose the Systematic Withdrawal Plan (SWP) to create regular income post-retirement. SWP allows you to withdraw a fixed amount from a mutual fund scheme regularly, i.e. on a monthly, quarterly, half-yearly, or yearly basis. You can also earn returns on the remaining corpus until the next payout. Opting this method lets you plan your expenses better.

From the taxation point of view, you must know that withdrawals may be taxable based on whether your investment is in equity-oriented or debt-oriented funds. Also, the capital gains classification will be done based on the duration of holding them.

5. Rental Income from Property

In case you had invested in a second residential property or a commercial property when you could, you must have let it out for rent or lease. If you do not already own a second property and if you still can, we recommend you to purchase a commercial property that can yield an attractive monthly rental income. 

Rental income can be thought of as a popular source of income for retirees. Having this income as part of the income from other financial products can help in easy flow of money so you don’t have to worry about any unforeseen expenses. Make sure to prioritise the way you receive regular income post-retirement after taking extra care on how the different products tax such income.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in