Investment options for retired person

Capitalstars Investment Adviser

Here are few investment options for the retired to provide for their monthly household expenses. The idea is to build a retiree portfolio with a mix of these products.
Retirement means the end of earning period for many, unless one chooses to work as a consultant. For retirees, making the best use of their retirement corpus that would help keep tax liability at bay and provide a regular stream of income is of prime importance. Building a retirement portfolio with a mix of fixed income and market-linked investments remains a big challenge for many retirees. The challenge is not to outlive the retirement funds - one retires at 58 or 60, while the life expectancy could be 80.

The idea is to build a retirement portfolio with a mix of these products. Here are few investment options for the retired to provide for their monthly household expenses.

Senior Citizens' Saving Scheme (SCSS)
Probably the first choice of most retirees, the Senior Citizens' Saving Scheme (SCSS) is a must-have in their investment portfolios. As the name suggests, the scheme is available only to senior citizens or early retirees. SCSS can be availed from a post office or a bank by anyone above 60. Early retirees can invest in SCSS, provided they do so within one month of receiving their retirement funds. SCSS has a five-year tenure, which can be further extended by three years once the scheme matures.
Currently, the interest rate in SCSS is 8.6 per cent per annum, payable quarterly and fully taxable. The rates are set each quarter and linked to the G-sec rates with a spread of 100 basis points. Once invested, the rates remain fixed for the entire tenure. Currently, SCSS offers the highest post-tax returns among all comparable fixed income taxable products. The upper investment limit is Rs 15 lakh and one may open more than one account. The capital invested and the interest payout, which is assured, has sovereign guarantee. What's more, investment in SCSS is eligible for tax benefits under Section 80C and the scheme also allows premature withdrawals.

Post Office Monthly Income Scheme (POMIS) Account
POMIS is a five-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is set each quarter and is currently at 7.8 per cent per annum, payable monthly. The investment in POMIS doesn't qualify for any tax benefit and the interest is fully taxable.
Instead of going to the post office each month, the interest can be directly credited to the savings account of the same post office. Also, one may provide the mandate to automatically transfer the interest from the savings account into a recurring deposit in the same post office.

Bank fixed deposits (FDs)
A bank fixed deposits (FD) is another popular choice with the retirees. The safety and fixed returns go well with the retirees, and the ease of operation makes it a reliable avenue. However, interest rate over the last few years has been falling. Currently, it stands at around 7.25 per cent per annum for tenures ranging from 1-10 years. Senior citizens get an extra 0.25-0.5 per cent per annum, depending on the bank. Few banks offer around 7.75 per cent to seniors on deposits with longer tenure.

Mutual funds (MFs)
When one retires and there is a likelihood of the non-earning period extending for another two decades or more, then investing a portion of the retirement funds in equity-backed products assumes importance. Remember, retirement income (through interest, dividends, etc.) will be subject to inflation even during the retired years. Studies have shown that equities deliver higher inflation-adjusted returns than other assets.

Tax-free bonds
Tax-free bonds, although not currently available in the primary market, can also feature in a retiree's portfolio. They are issued primarily by government-backed institutions such as Indian Railway Finance Corporation Ltd (IRFC), Power Finance Corporation Ltd (PFC), National Highways Authority of India (NHAI), Housing and Urban Development Corporation Ltd (HUDCO), Rural Electrification Corporation Ltd (REC), NTPC Ltd and Indian Renewable Energy Development Agency, and most carry the highest safety ratings. One may, however, buy and sell them on stock exchanges as they are listed securities.

Immediate annuities
Retirees could also consider the immediate annuity schemes of life insurance companies. The pension or the annuity is currently around 5-6 per cent per annum and is entirely taxable. There is, however, no provision of return of capital to the investor, i.e., the corpus or the amount used to purchase annuity is non-returnable. There are about 7-10 different pension options, including pension for lifetime for self, death to spouse and post that the return of corpus to heirs. The corpus is not returned to the investor under any pension option. The immediate annuity may not suit an investor who is capable of selecting and building his own portfolio. So it is better to diversify across different investments rather than invest in this scheme if you have the wherewithal to manage your own portfolio. This is also advisable as the returns offered on these immediate annuities are currently on the low side.