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Generating regular income in retirement is the most important on-going goal for Senior Citizens. And rightly so. Most people at this age do not have an active source of income. So they want to put money in best investment options for generating regular income for senior citizens in 2020 2021 in India.
The idea is to put in place a reliable source of regular income for their retirement years. And as a result, then want to know what are the best investment options available for senior citizens and retirees for regular income. But due to the falling interest rates, many such seniors are facing some concern.
So I wanted to update this post based on latest investment options for senior citizens in 2020-21 to generate regular income.
But I must say this upfront that when looking for investment options for Senior citizens in India, it is always advisable to not look at the product returns only. Other things to consider are taxes and post-tax returns, liquidity and lock-ins, capital preservation and ability to generate regular income via interest income or pension. And there is no one size fits all here. Different people will require different income solutions. I have regularly maintained that retirement planning is the nastiest problem in finance. And planning regular income using available investment options and within all the constraints is just one aspect of it.
So lets see what these investment options are.
Latest Investment options for Senior Citizens in 2020-21 to Generate Regular Income
- Bank Fixed Deposits – Nothing to explain here. But senior citizens do get additional 0.5% interest than regular deposits. So this is one popular option for senior citizens. The interest payout can be taken at monthly intervals as well so that it can act as a regular income for retirees. In general, the bank FD rates are low these days. So this is not very helpful if booking FD now. If you already have a long term FD locked in at higher rates from earlier years, then good for you. And these days, some banks are offering special fixed deposits for senior citizens as well, which offer additional interest over and above what is generally provided to senior citizens. And please, when choosing banks to make FDs in, stick to large, nationalized and too-big-to-fail systematically important banks like SBI, HDFC, ICICI, etc. Don’t go to smaller banks, cooperative banks, corporates FDs offering higher rates. They offer higher rates but you never know when they may fail and your money may be stuck in them for long. Also, do read Fixed Deposit monthly interest on Rs 1 crore.
- Post Office Deposits – These are similar to bank FDs. Pretty safe too. Not much to write about this.
- Pradhan Mantri Vaya Vandana Yojana (PMVYY) – PMVVY has been designed specifically for senior citizens looking to have a predictable interest or pension income. The maturity period for PMVVY is 10 years and as of now, PMVVY gives a return of 7.4% per annum. The interest rate on PMVVY is locked for 10 years at the time of purchase. The maximum amount that can be invested in PMVVY is Rs 15 lac (for monthly pension option). Its slightly lower for other pension modes (like quarterly, half-yearly, yearly) But since the upper limit of PMVVY of Rs 15 lac is per senior citizen, if both the husband and wife are senior citizens, then the family can invest Rs 30 lakhs in PMVVY. PMVVY has 4 interest (pension) payout options – monthly, quarterly, semi-annually, and annual payouts. On maturity of 10 year PMVVY, the pensioner gets the full invested amount back. No tax has to be paid on the amount. Read more about Rules & Benefits of PMVVY.
- Senior Citizen Savings Scheme (SCSS) – The maturity period for SCSS is 5 years and as of now, SCSS gives 7.4% annually. The SCSS interest rates are open to revision once every quarter now. SCSS has only one option of quarterly interest payouts, i.e. at the end of months June, September, December and March. The maximum investment in SCSS is capped at Rs 15 lac per senior citizen. One can make several SCSS deposits but the sum total of all deposits in all SCSS accounts should not exceed Rs 15 lac for each senior citizen. On maturity of 5 year SCSS, the SCSS account gets closed and the invested money can be withdrawn. It is also possible to extend the matured SCSS plan by another 3 years but the rate of interest will be as per the then prevailing rates and not necessarily same as the original one in the initial 5-year period.
- Read more about comparison SCSS Vs PMVVY to understand the differences between both the products.
- Many people ask this question – Can I invest in both SCSS and PMVVY? Yes ofcourse. In fact, if both spouses are over 60, then each can invest Rs 15 lac (maximum for both SCSS and PMVVY) in both the schemes. So in total, Rs 60 lac can be invested in these schemes by a senior citizen couple (Rs 15 lac in SCSS for Husband, Rs 15 lac in SCSS for Wife, Rs 15 lac in PMVVY for Husband, Rs 15 lac in PMVVY for Wife)
- Post Office Monthly Income Scheme (POMIS) – The name itself is self-explanatory. It has tenure of 5 years and has current interest rate of 6.6%, which is paid out monthly.
- 75% Government of India Savings Bonds (Taxable) – These are now not available for fresh purchase
- Tax Free Bonds
- Immediate Annuity Plans – Annuities are interesting products. Its basically a pension product in which you pay a lump sum to an insurance company like the LIC. In exchange, you get paid a monthly pension. There are various options to choose from like for how long pension will last, pension to spouse upon the death of the annuitant, return of the corpus used to generate the corpus on death, etc. How much returns do annuity gives? The annuity rate offered by the insurer depends on the age of the annuitant and the option chosen upon his/her death. Bu in general, older the person at the time of purchase, better the annuity rates are.
- Debt Mutual Funds – Not suitable for totally risk averse senior citizens but if the corpus available is large enough, then some exposure can be considered (and SWP used to generate some income) if other government savings options have been exhausted. But debt funds are not risk free. I have written a detailed note on how to pick debt funds already which should be read to understand how to first correctly understand the product before trying to invest in it.
- PPF – This might sound surprising but hear me out. It is allowed to extend PPF account after 15 year maturity. As per the rules, PPF account can be extended in blocks of 5 years with the option of extending with contribution or without contribution. PPF account in the extended years allow one withdrawal per year. So you can use this as a annual pension tool kind of way. Right? Let’s say your accumulated balance is Rs 1 crore in PPF account. Now the PPF rate suppose is 7.5% (PPF interest rate history). This will generate Rs 7.5 lac in tax-free interest. You can withdraw this amount tax-free at the start of next year. Simple. What’s more is that unlike pension or income from annuity which is taxed as per your income tax slab, PPF withdrawals are tax free.
- NPS Annuity – Even though NPS itself doesn’t pay pension, senior citizens can use a part of the NPS corpus to purchase annuity that provides regular pension income. Read more details in NPS Maturity Annuity Pension Rules.
I think that’s a sufficiently long list. Of course there are other options as well. But these are the core ones. And I must warn you that do not be attracted by what your banks are telling you. Do not take financial advice from banks. They will scr** your finances! Also, its possible that your children will try to advice you with best intentions at heart. But be careful as they may themselves be a victim of half-knowledge-which-is-dangerous for your retirement plan.
Note – A good retirement plan would also have a small component of equity exposure (via some version of a retirement bucket strategy) to beat inflation in the long run. And this is all the more important now as gradually we are getting into a falling interest rate scenario which can affect the success of a retirement plan. But since we are talking about generating regular income, equity funds cannot be used for the same.
So hopefully, you would have found this list of best investment options for regular income for Senior citizens in 2020 useful. So if you are a retiree who is looking for answers to where should senior citizens invest in 2020-21 in India, then this post is a good starting point.