Regular income and capital security after retirement: Perfect financial planning for the second innings of life

After retirement from job or business, the biggest priority in every person's life is to ensure regular monthly income and security of their lifetime savings. While regular salary stops with retirement, medical expenses, household needs and inflation continue to increase with increasing age. In such a situation, if retirement funds (like PF, gratuity and leave encashment) are left in any risky or low return instrument without thinking, then the capital starts decreasing rapidly in a few years.

Financial planners believe that a successful retirement portfolio is one that minimizes risk, provides government protection, transfers interest to the bank account at regular intervals and also keeps tax liability low. There are five major schemes for senior citizens in the Indian financial market that strike the best balance of protection, guaranteed returns and regular cash flow.

'Senior Citizen Savings Scheme' (SCSS) run by the Central Government for senior citizens is the most popular and highest returning small savings scheme in the country. Any Indian citizen aged 60 years or above can open this account in any post office or authorized bank branch.

• Interest Rate: An attractive interest of 8.2% per annum is being given by the Finance Ministry on this scheme.

• Interest Payment: Its interest is deposited directly into the investor's savings account every quarter (31 March, 30 June, 30 September and 31 December).

• Maximum investment limit: An individual or husband-wife together can deposit a lump sum amount up to a maximum of ₹ 30 lakh.

• Duration and Extension: The basic maturity period of the scheme is 5 years, which can be further extended in blocks of 3 years each.

• tax benefit: Under Section 80C of the Income Tax Act, the deposit amount gets the benefit of tax exemption up to ₹ 1.5 lakh.

• Earning Mathematics: If a senior citizen invests a maximum of ₹ 30 lakh in it, he gets an interest of ₹ 2,46,000 annually at the rate of 8.2%, which means a guaranteed income of ₹ 61,500 every three months (approximately ₹ 20,500 per month).

If you want fixed income in your account every month instead of quarterly, Post Office Monthly Income Scheme (POMIS) is the safest and simplest option. This scheme is operated by India Post and there is no risk of any market fluctuations.

• Interest Rate: Presently 7.4% per annum interest is being given on Post Office MIS.

• Interest Payment: Interest is paid monthly directly into the investor's post office or linked bank account.

• input range: A maximum of ₹ 9 lakh can be invested in a single account and a maximum of ₹ 15 lakh can be invested in a joint account (husband and wife).

• Maturity Period: This scheme is for a period of 5 years, after which the principal amount is fully refunded or can be reinvested.

• Earning Mathematics: If husband and wife open a joint account of ₹ 15 lakh, then an annual interest of ₹ 1,11,000 is earned at the rate of 7.4%, which gives a fixed income of ₹ 9,250 every month sitting at home. The monthly interest on a single account of ₹9 lakh works out to be ₹5,550.

The country's major government (like SBI, PNB, BoB) and top private banks (HDFC, ICICI, Axis) offer 0.50% to 0.75% additional interest rates to senior citizens above 60 years of age compared to general citizens.

• Interest Rate: Currently, interest rates on bank FDs of 2 to 5 years for senior citizens range from 7.25% to 7.80%, while for 'Super Senior Citizens' above 80 years, some banks are offering rates more than 8.00%.

• Payout Options: In bank FD, the investor has complete freedom to take interest monthly, quarterly or on maturity.

• Safety armor: Under the rules of 'Deposit Insurance and Credit Guarantee Corporation' (DICGC), a subsidiary of RBI, deposits up to ₹ 5 lakh including principal and interest in every bank are fully insured and safe.

• Tax Rules: Under Section 80TTB of Income Tax, senior citizens get full tax exemption on annual interest up to ₹ 50,000 received from bank and post office FDs and no TDS is deducted up to this limit.

'Floating Rate Savings Bonds' issued by the Reserve Bank of India (RBI) prove to be a boon for retired people who have a large corpus and want to earn more than 8% interest along with government security.

• Interest Rate: At present 8.05% annual interest is being given on these bonds. This rate is pegged at 0.35% above the National Savings Certificate (NSC) rate, which is reset after review every 6 months.

• Sovereign Security: This bond is directly covered under the Sovereign Guarantee of the Government of India, hence there is zero risk of default.

• No upper limit on investment: While SCSS and POMIS have maximum investment limits, investments in RBI Bonds can be made from as low as ₹1,000 and can go up to crores of rupees without any maximum limit.

• Term & Payout: It has a maturity period of 7 years and interest is paid half yearly on 1 January and 1 July every year directly into the bank account. Special relaxation for Premature Withdrawal is available for senior citizens after 4 to 6 years depending on age.

The biggest limitation of fixed deposits and government schemes is that their returns remain fixed, which makes it difficult to deal with inflation rising at the rate of 6-7%. To solve this, financial experts recommend investing 20 to 30 percent of the retirement fund in hybrid or conservative mutual funds. Systematic Withdrawal Plan (SWP) Recommend to start.

• How SWP works: You deposit a lump sum in your chosen fund and instruct the fund house to transfer a fixed amount (say ₹10,000 or ₹25,000) to your bank account every month.

• Capital appreciation and regular income: If your fund is giving an average return of 9 to 11% and you are making monthly withdrawals at the rate of 6 to 7%, then regular income keeps coming into your account and the balance also keeps growing with time.

• Unprecedented Tax Benefits: Bank FD interest is taxed as per the full tax slab, but in SWP, only the portion of the profits you withdraw is taxable. Annual long term capital gains (LTCG) up to ₹1.25 lakh in equity-oriented hybrid funds are completely tax-free, resulting in huge tax savings for senior citizens.

Financial advisors clearly suggest that one should never make the mistake of investing the entire fund received at the time of retirement in a single scheme. Instead a balanced portfolio formula should be adopted:

• Bucket 1 (Guaranteed Monthly Spending): Invest 50 to 60 percent of the total corpus in SCSS, POMIS and Senior Citizen Bank FD, so that the essential monthly expenses of the family (ration, electricity-water bill, medicines) continue smoothly without any worry.

• Bucket 2 (Long term and large funds): Keep 20 to 25 percent of the total fund in 100% safe and high interest instruments like RBI Floating Rate Bonds, which can provide stable capital growth for the long term.

• Bucket 3 (Inflation protection and emergency fund): Keep the remaining 15 to 20 percent in liquid funds and conservative hybrid funds (SWP model). This bucket will come in handy in future medical emergencies and will also maintain the real purchasing power of your money by beating inflation.