Smart strategies for your retirement kitty

Senior citizens with a regular income can be more aggressive in terms of equity investments

Senior citizens will always face this question - how to deploy the retirement kitty? The answer depends on a number of factors. But one factor outweighs all the others. That is, do you have regular income in the form of annuity or pension? If the answer is yes, then your risk-taking ability improves substantially.

Imagine this
Someone, who is earning a pension of Rs 50,000 monthly is ensured of a regular income, but he is more likely to have a much-lower corpus. On the other hand, someone with a retirement corpus of Rs 2 crore has to decide how to deploy his funds so that he has regular income plus enough for emergencies and health costs.

Of course, when one reaches a certain age in life there is no reason to take massive risks to grow one's money. By retirement, most of us would have saved enough money. However, it is important to invest in various asset classes instead of keeping the same money in a bank account (the best savings bank rate is 6 per cent), as inflation will eat into the capital otherwise.

The two important aspects of investing for senior citizens is to protect one's capital and have adequate liquidity as one does not know when the necessity for cash will arise. There are several investment avenues an elderly person can utilise to benefit from moderate returns with low capital risk.

Some of the assets that senior citizens can invest in are:
Senior Citizen Savings Scheme
This is a scheme offered by the Government and one can subscribe through various public sector banks and post offices. Anyone who is over 60 years of age is eligible to invest, with the minimum investment being Rs 1,000 and the maximum investment being Rs 15 lakh. This scheme offers annual interest rate of 9 per cent, and the capital is locked in for a period of five years. Since there is a lock-in period, there is also an early withdrawal penalty of 1.5 per cent for withdrawals within two years and 1 per cent for drawing out money between two and five years.

Fixed deposits
Senior citizens can opt to invest in fixed deposits, as most banks offer preferential interest rates to the elderly. One has the flexibility to choose from various lock in periods, with interest rates varying from 7 per cent to 11 per cent in most cases. It is always advisable to invest in bank fixed deposits rather than a corporate deposit since the capital is assured in the case of banks.

Liquid & monthly income funds
Debt mutual funds, especially monthly income plans and liquid funds are ideal assets for senior citizens to invest in. They offer capital protection for moderate returns, are liquid, and also have the benefit of providing regular income streams. Since senior citizens enjoy a higher tax cover, there may not be any tax implications on these investments (depending on one's investment levels, etc.).

Post office deposits
The post office offers a variety of investment options for senior citizens, and the two most popular schemes are the monthly income scheme and the time deposits. Under the monthly income scheme, one can invest between Rs 1,000 and Rs 3 Lakh (or Rs 6 Lakh if investing jointly) for a period of six years, and earn an interest of 8 per cent p.a. On the other hand, the time deposits accept much lower minimum deposits of Rs 200, and offer interest of approximately seven per cent p.a. One can invest for between one and five years in the time deposits.

Summary

• Keep safety of capital and liquidity in mind
• MIPs, FD are good options
• Take account of inflation and tax rates

The author is CEO & Founder, Right Horizons