Top Investment Options for Retirees

A solid retirement plan is one that allows you to make optimal use of your savings, creates a regular stream of money, and reduces tax liabilities as much as possible. Building a retiree investment portfolio is not an arbitrary process wherein you pull numbers out of a hat. It is an empirical process wherein you factor in essential variables to arrive at a plan that fulfils your short-, medium-, and long-term financial goals.

Retirement marks the end of professional income for most people. Unless you choose to continue working as a consultant or run a business, you have to make the most of the money you already have. Post-retirement, you are faced with two major concerns—the status of your health and finances. You have done your time at work. Now, your hard-earned money needs to be invested right so you take care of your needs comfortably and independently.
Depending on your individual needs, your retirement corpus can be invested in instruments that offer monthly income returns such as a pension plan or annuity plan, and low-risk financial growth options. These are some of the top investment options for retirees:

Post Office Monthly Income Scheme (POMIS)

Considered an integral part of every retiree’s portfolio in India, Post Office Monthly Income Scheme (POMIS) is a safe pension plan that functions with government backing. All residents of India who are 10 or more years old are eligible to invest in POMIS. As of December 2020, the interest rate offered by POMIS is 6.6%.
POMIS fits into your portfolio easily as a safe and secure retirement plan. In this scheme, you can invest a specific amount of money every month. The interest accrued by the amount is paid out to the investor in the form of a monthly payment. If your risk appetite is low and you are looking for a monthly income retirement plan, POMIS is a good option.
While you can start as many POMIS accounts as you like, there is a limit on the cumulative amount that can be invested in one person’s name. This scheme also allows you to open a joint account with up to 3 account holders. In the case of POMIS accounts that are operated by an individual, the maximum investment allowed is Rs. 4.5 lakhs across all accounts. In the case of joint accounts, no more than Rs. 9 lakhs can be invested. The minimum investment allowed is Rs. 1,500, and the scheme runs for a period of 5 years.
Retirees can consider reinvesting the monthly interest in a recurring deposit to earn more interest or link their POMIS account with their mutual fund portfolio. Another option is to let the interest accumulate and withdraw it only when a significant corpus is created.

Senior Citizens Savings Scheme (SCSS)

Another government-backed initiative, Senior Citizens Savings Scheme (SCSS) was started in 2004, and is aimed at senior citizens above the age of 60. Also, retirees who have opted for the Voluntary Retirement Scheme (VRS) or Superannuation in the age bracket 55-60 or Retired defense personnel with a minimum age of 50 years can also invest in the scheme.
Since the interest earned in this retirement plan is credited to you on a quarterly basis, SCSS can serve as a stream of regular income for retirees. The minimum deposit possible in SCSS is Rs. 1,000, while the maximum investment possible is Rs. 15 lakhs.
One of the safest investment instruments in India, this retirement plan carries a sovereign guarantee for principal and interest payments. However, the interest earned from SCSS is taxable, and TDS will be deducted if the total interest earned in a year exceeds Rs. 10,000. As December 2020, the interest rate earned by the SCSS retirement plan is 7.4%.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Senior citizens of and above the age of 60 can sign up for the Pradhan Mantri Vaya Vandana Yojana (PMVVY). This pension plan was announced by the Government of India and is operated by the Life Insurance Corporation. Though this pension plan was initially available till 31st March 2020 only, it has received a three-year extension till 31st March, 2023.
In this retirement plan, you will receive an assured rate of return for 2020-21 (7.4%). This interest rate will be reset every year after that. The pension plan term is 10 years, and pension payments are made at monthly, quarterly, half-yearly, or yearly frequency as chosen by the retiree at the time of purchasing the pension plan. At the end of the pension plan term, a survival benefit in the form of purchase price and final pension instalment will be paid to the pensioner. In case of the death of the pensioner during the pension plan term, the purchase price is paid to the beneficiary. The maximum investment under this scheme is Rs. 15 lakhs.

Pension and Annuity Plan

The word 'pension' is derived from the Latin term for 'payment.' It is a fund used to add sums of money periodically while you are employed, and from which monthly pay-outs can be received to support oneself post-retirement. A pension plan creates a new stream of regular income to be used after retirement when you no longer have any professional income coming in.

Life Cover + Investment

At IndiaFirst Life retirement planning will ensure that you build a retirement corpus that will financially support you during your retirement as well as later utilize an annuity to convert the corpus in to an income stream.
You can choose the pay-out frequency—monthly, quarterly, half-yearly, or annually, depending on your pension plan options and personal preferences.

A pension plan secures your financial future and allows you to draw a regular income during your retirement years. It is a great tool to ensure your financial independence during your golden years.

Types of Pension Plan

The two basic types of pension insurance are deferred annuity plan and immediate annuity plan. A deferred annuity plan is a typical long-term pension plan wherein the payouts initiate on a future date as set by the customer.
An immediate annuity plan is like a single premium retirement plan. A single lumpsum payment is required to kickstart immediate pay-outs from such a pension plan.

IndiaFirst Life Guaranteed Annuity Plan
This annuity plan assures you a regular income for the rest of your life with 12 different annuity options to choose from. As a one-time payment policy, this retirement plan is perfect for retirees who need to kickstart monthly pension payments immediately.

Mutual Funds

Typically, your retirement years ought to be a time of stress-free living. Most people choose safe and risk-free pension plans that offer guaranteed and consistent returns. However, if you are open to diversifying your portfolio and have a larger appetite for risk, an equity-backed monthly income plan (MIP) that invests in stable large-cap funds might be a good bet for you.
As a retiree, you may also choose to invest in debt funds which offer you the benefits of fixed income and liquidity. Ensure that you select mutual funds that offer tax benefits. Mutual funds are subject to market risks, so it is important to consider your risk-returns expectations before you invest.

Making the Choice

The goal of retirement planning is to ensure that your corpus lasts as long as you do. Listed above are the top investment options for retirees. Should you invest in all of them or pick and choose? Here’s a step-by-step guide to help you decide which retirement plan to opt for.

Step 1: Financial goal-setting

It is not enough to say that you want to be comfortable during your retirement years. How much would it take for you to be satisfied? Factor in inflation to arrive at a realistic amount of money you would need to take care of your needs during your retirement. This step is all about identifying your financial needs and constraints and setting your retirement goals.

Step 2: Knowing your current situation

Analyse your present financial situation. Are there debts that need to be paid, liabilities to be factored in, and specific future expenses to plan for? Make provision for these payments to arrive at how much you have left with you to invest in a pension plan.

Step 3: Examine your risk-appetite

As a retiree, your risk-appetite understandably differs from others, owing to the lack of professional income. Investments in government pension schemes, a reputed pension plan, immediate annuity plan, government securities and bonds, and post-office schemes are great avenues for safe and secure investment with the assurance of guaranteed returns.

Step 4: Allocation of funds

Earmark a specific amount for retirement planning. With a single premium immediate annuity pension plan, you can put aside a significant sum at one go and enjoy guaranteed monthly pension benefits immediately after that. Some retirement plans offer a deferred annuity plan option so you can decide your vesting age as per your needs. Along with pension plans, you may also choose to invest parts of your corpus in debt-based mutual funds—allocate funds accordingly.

Step 5: Monitoring and reassessing

Nothing is set in stone. Whether it is your financial goals or personal preferences, it is important to go back to the base periodically to monitor progress and reassess the efficacy of the solution you have chosen.

The last thing an older investor needs is financial stress. This is why it is important to carefully consider the top investment options and pick a pension plan that is risk-free, offers guaranteed returns, and eases your monthly financial burden.