When it comes to plan for your retirement, the truth is that the earlier you start and plan for saving and investing, the better and corpus you can save for your retirement years, all thanks to the potential of compound interest. If you have not yet started saving for your retirement, then you are not alone. There are many steps that you need to take in a bid to increase the savings for your retirement years. The major challenge that every person encounters after their retirement is to ensure sustainable flow of income that can beat inflation and help them maintain a standard lifestyle.
After your retirement, your capacity to take risk for investment is very minimal. Therefore, retirement planning should be done well in advance so that you can start investing your retirement money in avenues that guarantee secure and higher returns. Most of the retirees usually make a common mistake by looking at solely safety of their capital. To ensure safety of their capital, they often opt for wrong venues and investment tools that not only guarantee low returns, but also come with low tax benefits. Apart from pension schemes and pension plans, there are also other instruments that can help you yield higher returns on your investments after retirement.
Conventional Senior Citizens Savings Scheme or SCSS
SCSS is the saving scheme that is operated by central government of India and this has become the most popular saving avenues for elderly people in India. This saving scheme comes with the entry age of 60 years and offer highest interest rate of 9.3% per annum which is higher than any other debt instruments with quarterly payout option. However, people who opted for voluntary retirement at 55 years can also opt for this saving scheme.
Interest generated under this scheme is credited automatically to the account of the policy holder thrice a year, i.e. on 31st March, 30th September and 31st December. There is a lock-in period of 5 years and can be extended for another 3 years. The investments also qualify for dedication under Section 80C of Income Tax Act. During emergency, you can go for premature withdrawal by paying a 1-1.5% of fine on invested amount.
Monthly Income Plans
Like post office schemes, mutual funds also promise to offer monthly income plans. These plans are called as open ended plans where large portion of your money is invested in debt instruments and a small portion is kept for equities. The open ended schemes are perfect for those retirees who are traditional, but desire to have some equity market exposure. Monthly income is not guaranteed and the income comes from dividend payout and they are tax free for the investors. So, there is no surety about dividends from mutual funds and they can be paid annually, quarterly or monthly. Dividends are not taxed, but the redemptions can be taxable depending upon the capital gains.
Post Office Monthly Income Scheme of POMIS
This is a popular Pension Plan that ensures regular monthly income. However, the rate of interest is lower than SCSS which is 8.4% annually. For a single account the investment cap is set to 4.5 Lakhs and 9 Lakhs for joint account. The maturity time of this plan is 6 years and if the investor prefers to invest for entire duration, then they become eligible for 5% bonus which will be paid on maturity. There is a penalty for premature withdrawal. The account can be transferred from one post office to another post office. The returns added to one’s income and are taxable depending upon the investor’s income tax slab.