The Budget 2023 brought a lot of good news for senior citizens in India. The majority of Indians above the age of 60 depend on government instruments to provide risk-free interest income during retired life. While many have the benefit of old pension (OPS), the others use instruments like SCSS, POMIS, etc. to set up a virtual pension of sort using the interest payouts.
Here are the Budget announcements that were good new for senior citizens –
- Senior Citizen Savings Scheme (SCSS) investment limit raised from Rs 15 lakh to Rs 30 lakh (details).
- Post Office Monthly Income Scheme (POMIS) investment limit also raised from Rs 4.5 lakh to Rs 9 lakh per person (or Rs 15 lakh for joint account).
How can Senior Citizens use SCSS + PMVVY + POMIS together?
- A retired or senior citizen couple can now park Rs 30 lakh each in Senior Citizen Savings Scheme (SCSS). So in total, they have the option to invest Rs 60 lakh in SCSS. As of now, SCSS offers 8% annual interest (check historical SCSS interest rates). This translates to a total of Rs 4.80 lakh in annual interest income for the couple. While SCSS gets reviewed by the govt. every quarter, the rate at the time of making SCSS deposit is fixed for the entire tenure. And the tenure is 5-year. On maturity, senior citizens can extend the tenure by 3 more years. So a SCSS has 5+3 years total tenure.
- Senior citizen couple can also park Rs 9 lakh each in Post Office Monthly Income Scheme (POMIS). So in total, they have the option to invest Rs 18 lakh as individuals (but Rs 15 lakh as a joint account) in POMIS. As of now, POMIS offers 7.1% annual interest. This translates to a total of Rs 1.28 lakh in annual interest income for the couple. The POMIS tenure is 5-year. You can have a look at the historical POMIS interest rates as well for refernce.
- Then there is Pradhan Mantri Vaya Vandana Yojana (PMVVY) that is quite attractive as well given its long tenure of 10 years for which interest rate of 7.4% is locked in. Senior citizens can park Rs 15 lakh each in PMVVY. So for a senior citizen couple, they have the option to invest a total of Rs 30 lakh in PMVVY. As of now, SCSS offers 8% annual interest. This translates to a total of Rs 2.22 lakh in annual interest income for the couple. But do note that the PMVVY scheme was launched in 2020 and (till now) is only available till 31st March 2023 for investment. So unless the government decides to not extend it any further, the PMVVY scheme will be retired from FY2023-24, i.e. April 2023 onwards. Do read PMVVY vs SCSS.
Together, a senior citizen couple can invest a total of Rs 1.08 Crore in these three schemes. And rough calculations show that they can generate about Rs 8.3 lakh annual interest income from these government-backed risk-free debt investment options.
Averaging it out, this comes to almost Rs 69-70,000 monthly interest income (before taxes), which is quite good for many elder couples who don’t have any pension from old pension OPS or any other annuities.
Note – One can also consider Mahila Samman Savings Certificate or MSSC offering 7.5% annual interest. But given the small limit of Rs 2 lakh and short 2-year tenure, in my view, it is not of much use for most female senior citizens. You can still use this free-to-download Mahila Samman Savings Calculator. based on excel to calculate how much should be the maturity amount of Mahila Samman Savings scheme investments.
But those senior citizens who have other income sources like pension, annuity, rentals, FD interest, etc. need to remember that the interest income from SCSS, PMVVY and POMIS is taxable. So they need to assess how the combined income from all sources will be taxed and what will be the overall post-tax returns for their retirement income portfolio. This is where the revised Section 87A can come in handy for those who total income of Rs 7 lakh and pay zero tax.
Don’t Forget Equities
Getting risk-free 7-8% in interest is fine for senior citizens, but that doesn’t mean they should ignore equities totally. A well diversified equity component can give 10-12% returns over the long term.
So to ensure that the portfolio is able to grow faster than inflation, a minor (but not too small) part of the retirement portfolio should be invested in equites as well. And this is best done via exposure to equity mutual funds via categories like largecap index funds, flexicap funds, aggressive hybrid funds, etc.
Depending on the size of the retirement corpus, risk appetite of the senior citizens and income requirements, 20-30% equity can be considered to extend portfolio longevity. Do read how to ensure you don’t run out of money in retirement.
But that aside, I think Budget 2023 has given some well-needed boost to retirees. Everyone may not have (or want to) invest Rs 1+ crore in instruments. But risk-free, government backed instruments, that offer multi-year assured returns, regular income payout can be very useful for senior citizens whose primary aim is generating regular income during retirement years. So that is how senior citizens can combine SCSS, PMVVY and POMIS to invest Rs 1 crore to generate Rs 68-69,000 in monthly interest income in India (2023).