A comfortable retirement is the result of a well built financial cushion that can fund your living expenses. It is something for which you have started preparation for a long time. Basically, post-retirement investment plans are based on required after-tax returns that can meet your living expenses and also increase the value of your investment portfolio.
Determining the post-retirement spending needs and cost of living would help to define the right size of a retiree’s investment portfolio. An accurate estimate of your withdrawal rate is necessary. So, you can invest accordingly.
Investments for Retirees
Following are the investment options for retirees that will generate a monthly Income:
1. Mutual funds
Mutual funds (MFs) provide periodic returns and increase its value with time. Mutual funds allow you to own stocks in different companies at once and help to spread out risk. There are various kinds of mutual funds such as debt funds, equity funds, tax savings funds. Equity stocks offer higher inflation-adjusted returns but investing in equity funds can be riskier. A retiree can invest a significant percentage of available funds in debt mutual funds because of its easy liquidity feature and further diversify across balanced funds and monthly income plans (MIPs). You can buy a mutual fund through a demat account or even without it. Demat account meaning can be understood as ‘an online account where your financial securities get debited and credited as per your trading account activities. If you open Bajaj Financial Securities Limited demat account, you can save big on brokerage costs as you have to pay a flat brokerage rate per trade.
2. Senior Citizens’ Saving Scheme (SCSS)
The Senior Citizens’ Saving Scheme (SCSS) is the priority of most retirees above 60 years because of its safety feature. SCSS has a 5-year tenure. It is a fixed income taxable product. Interest is payable quarterly. They consider it as a must-have in investment portfolios which is the right decision if they are risk-averse investors. Early retirees can also invest in this scheme but make sure you invest within three months after taking retirement.
3. Fixed Deposits
When it comes to the safety of funds and earning a regular income, fixed deposits come first in mind. Retirees looking for periodic payouts should invest in non-cumulative FDs and choose a preferable period to receive interest in their savings accounts. You can choose from monthly, quarterly, half-yearly, or annual interest credit options.
4. Tax-free bonds
Tax-free bonds can also get a place in a retiree’s portfolio. They are issued by government-backed institutions such as NHAI, NTPC Ltd, Power Finance Corporation, and various others. There is no TDS. But keep in mind that these are long-term investments with a lock-in period of 10 years. Invest only if you do not require the funds for such a long period. Tax-free bonds have trading options also. Usually, these bonds are listed on stock exchanges still, they are less liquid. You will get annual interest payouts only. You need to make a monthly expense schedule with this annual paid interest.
5. National Savings Monthly Income Account (MIS)
It is also called the Post Office Monthly Income Scheme Account. It is a 5-year investment that provides monthly interest. The maximum cap is Rs. 9 lacs under joint ownership whereas Rs 4.5 lacs under single ownership. There are no tax benefits.
The Bottom Line
Your investment planning depends on what needs you want to fulfill with the retirement corpus. Pay attention at an early age to build a corpus and reinvest it to earn a monthly income that can maintain your lifestyle.