Age-old confusion: When do you become a senior citizen?

Retired, but not yet a senior citizen seems to be the plight of many. For instance, the Union ministry of Social Justice and Empowerment defines a senior citizen as someone who is 60, but the income tax department allows benefits for the category only after 65.

In case of investments, banks’ fixed deposits offer a 0.5-1 per cent higher rate of interest to investors who are 60 and above. But any investor below the age of 65 would get taxed on the returns, thereby wiping out the benefits of the higher rate.

Similarly, under Section 80D, the income tax department provides benefits for children who are paying premiums for their parents (up to Rs 20,000). And while the insurer will charge a higher premium after 60 years, the benefit for the children will only kick in after 65.

As a result, there is quite some confusion when a senior citizen is filing his/her returns. According to reports, the Union government, in its previous term, had contemplated a uniform age definition for a senior citizen. However, that is yet to be done. So, numerous taxpayers in the age of 60-65 years find themselves refused the enhanced benefits they are supposed to get from their investments in different ‘senior citizen friendly’ instruments.

Financial experts agree the difference in the definitions of age limit for senior citizens can be a serious pain. Gaurav Mashruwala, certified financial planner and CEO, ACE Group, said: “The extra earnings from government saving schemes goes away in paying tax. The benefit, therefore, is very minuscule.”

So, what should seniors do to be able to reap maximum benefits from their savings?

Given the lack of choice and profile of a retired person (risk-averse), investment consultants said the best route was still government savings schemes or senior citizen savings schemes of banks and the post office. “Though the tax burden is higher, safety and regular inflow of cash should be the focus. Also, the rate of interest on these schemes is a good 9 per cent” said investment consultant D Sundarrajan.

However, if one has the cushion of a regular pension or a substantial corpus (high net worth individuals), riskier investments can be contemplated.

There are others who felt only fixed instruments may not be sufficient to meet all the needs. “We do not advise fixed instruments at all to senior citizens,” said Kartik Jhaveri, director, Transcend Consulting. His argument: excessive exposure to fixed income instruments are a bad idea for retired people because of low returns. Also, they do not help to beat inflation in the long run. Consequently, the inflation-adjusted value of the corpus keeps diminishing, while lifestyle and health expenses keep galloping. No wonder, he recommends riskier instruments to keep pace with the rising costs.

Retirement, typically, is characterised by lower income flows. Therefore, it is important that money be invested in a manner that takes care of all the needs. Also, there should be an emergency corpus to take care of any sudden expenses.

Invest a large part of the corpus, around 60-70 per cent in safe instruments, to ensure regular income flows. The rest 30-40 per cent can be put in riskier instruments to ensure higher returns and create an emergency corpus.