Imagine yourself in your 60’s, having morning tea with your beloved spouse in the garden of your house. This is a peaceful moment you always wanted to share with your life partner, without having to worry about numerous liabilities.
Suddenly your daughter and son – in – law inform you about their upcoming vacation plan, which they want to spend with you. Conflicting situation isn’t it?
You can enjoy with your children for few days. At the same time, it will also mean cutting down your living expenses as you are surviving only on your pension which is just sufficient to meet your living expenses and doesn’t leave any room for additional expense.
Most of the people rely on employer sponsored benefit plans Viz. Pension, Provident Fund etc. to survive during their retirement. The wish deep down to enjoy life after meeting all the responsibilities in life dies due to lack of financial resources. I should rather say lack of planning and awareness with regard to available income options to make retirement comfortable.
Besides traditional pension plans, gratuity and PF, there are many investment tools available for senior citizens, which carry no risk, and are tax efficient too. Let’s have a brief look at some of these:
1) POMIS (Post Office Monthly Income Scheme)
POMIS is a very simplistic, safe and sure way to receive a monthly income for retired people. Retirees can invest their lump sum retirement benefit under this scheme and can earn as high as 8.4% annual interest and that too, without taking any default risk on their money.
The best feature of this plan is monthly pay-out of interest, which is the most critical need of distribution phase (retirement years).
Features of POMIS –
Rate of interest is 8.5%
Maturity period is 5 years
Auto credit facility of interest
Minimum investment is INR 1500 and maximum investment is INR 4.5 Lacs for single account and INR 9 Lacs for joint account
2) SCSS (Senior Citizen Saving Scheme)
Any resident individual who has attained 60 years of age can open this account. Joint account can be opened only with spouse.
Investment under this scheme qualifies for the benefit u/s 80C of the Income Tax Act, 1961. Besides tax benefits, this scheme offers a high rate of interest at the rate of 9.20% per annum with quarterly interest pay-out.
Premature closure is allowed. Monthly Income Scheme (MIS) and Senior Citizen Saving Scheme (SCSS) are the best for Senior Citizens who desire monthly/quarterly interest. Invest in MIS / SCSS and transfer interest into RD account through SB account through written request and earn a combined interest of 10.5 % (approx.).
3) NSC (National Saving Certificate)
People in their transition phase can buy National Savings Certificates (NSCs) every month for Five years – Re-invest on maturity and relax - On retirement it will fetch them monthly pension as the NSC matures. Investment under NSC fetches 8.60% (VIII issue) and 8.80% (IX issue) with semi annual compounding.
4) Bank Fixed Deposit
Fixed deposit is a financial instrument which allows for money to be deposited with banks for a fixed duration ranging from 15 days to 5 years and above, and earn a higher rate of interest than conventional savings account. On maturity the investor receives a return which is equal to the principal plus the interest earned over the duration of fixed deposit.
Senior citizens who opt for a fixed deposit scheme are sometimes allowed an additional 0.5% on top of the regular return on offer. Deposits for 5 years or longer qualify for a tax benefit u/s 80C of IT Act, 1961.
5) Reverse Mortgage
Retired personnel, who could not acquire many assets for themselves besides a house, can now liquidate the value of house and survive during their retirement period.
In a Reverse Mortgage, the borrower pledges a property that he already owns (with no existing loan outstanding against it) and the bank in turn pays a series of cash – flows for a fixed tenure to the owner.
These can be thought of as reverse EMIs.
The draft guidelines of reverse mortgage in India prepared by the Reserve Bank of India, have the following features:
Any house owner over 60 years of age is eligible for a reverse mortgage.
The maximum period of property mortgage is 20 years with a bank or HFC (housing finance company).
The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
The revaluation of the property has to be undertaken by the bank or HFC once every 5 years.
The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.
Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.
Investment avenues are numerous, the key lies in making yourself aware of those and pick the suitable one for you.