Category: Retirement Planning

Post Retirement Investment Strategies

Post Retirement Investment Strategies

Mr. and Mrs. Innani after a year of retirement were shocked to see a notice of not filling the tax sheet on time. The duo was under the impression that once you are retired and you are not earning, you do not need to pay tax. Are you the one under the same impression?

Then, let’s dive in to see what investment strategies could help you to enjoy your retirement peacefully.

The Golden Rules of Retirement Investment

Many people mark retirement as the end of earnings. However, that is not true! If you are a government employee, you may earn a pension that could be termed as your earnings. Other sources of income during retirement could be rents, capital gains, interest on debt and equity investments or dividends.

In fact, even the corpus you built and locked it as FD in banks is also taxable [however if you are a senior citizen and have no other earnings that could be tax exempted].

So, here are some golden rules of post-retirement investment –

  • Avoid Risky investments
  • Strike a balance between risk and return
  • Evaluate your need – looking for long term, medium term or short term investment plans
  • Create a medical corpus fund to cover medical expenses that may arise especially in this phase of life
  • You might need to look for investment options that fulfill three dire needs
    • Tax free interest earning or minimal tax
    • Generate Income
    • Safe [less risky]

Investment Options for Post-Retirement

Long Term Options with no tax on maturity

Invest a part of your corpus into long-term capital gains from equity mutual funds and stocks. Although experts suggest not going for risky investments, mutual funds are not capable of offering returns higher than inflation. Hence some equity exposure is a must.

Public Provident Fund [PPF]

PPF is one of the safest investment options for retirement. An individual can invest 1,00,000 /-  every year in PPF. Although it comes with a lock-in of 15 years, users can extend the tenure of the account thrice after the end of the 15th year. As an investment strategy, you could put in a part of your corpus and extend it for five years, rather than opening a new one that would come with a lock-in of 15 years.

Balanced Funds

Another safe yet moderate return could be opted by investing in balanced funds. Balanced funds or hybrid funds are a mix of equity and debt instruments; however each asset class has to be a minimum and maximum value as specified to limit the risk exposure. The funds are non-taxable on long-term capital gains and have shown double-digit earnings to the investors.

Tax-Free Bonds

Tax-free bonds issued by government approved authorities are a safe bet and tax-free [partially] investment options. However they come with a lock-in period of 10-15 years, and if you sell these bonds in the stock exchange, the capital gain gets taxable.

 Investment Options to Generate Regular Income

If you are not eligible for a pension, then it’s natural to worry about money generation after retirement. The following options would help you to use a part of your corpus and get some regular income in hand on the monthly/quarterly basis.

Reverse Mortgage Plan

If you own a house, and your corpus is not enough to provide you with monthly income, you can take a loan against your home by mortgaging it to a Bank. In return, the bank would pay you either in a lump sum or monthly/quarterly payments.

Senior Citizen Savings Scheme [SCSS]

Individuals of age 55 years and above but opted for Voluntary Retirement Scheme [VRS] or individuals aged 60 years and above could avail this scheme. The maximum amount that could be invested is 15 lakhs. However, users could open multiple accounts. The interest offered is 9.2 %. However, the interest is not tax exempted.

Monthly Income Schemes [MIS]

The offering by Post Office is quite similar to Banks Fixed Deposits; however with MIS one could get monthly interest payment.  The scheme is ideal for senior citizens who fall under no tax slab [i.e. income less than 2.5 lakhs] or 10 % tax slab.

Insurance Annuity Plans

Annuity products of insurance companies can be another source of regular income. You pay a lump sum and decide the frequency and quantum of payouts.

Mutual Fund MIP’s

 As stated earlier MIS schemes are not advisable for individuals who fall under a tax bracket of 20 % and 30%, to surpass that issue users could invest in Mutual Fund Monthly Investment Plans. The scheme is similar to that of MIS where users could get a regular income, however, the MIP’s offer better returns as they have some equity options. However, long-term gains and dividends are taxable as per the income tax rules.

Due to its equity exposure, many fund houses fail to pay regular dividends as the stocks market could at times be bearish. To avoid such circumstances, users could opt for systematic withdrawal plan (SWP)  from liquid/ Debt funds that could guarantee regular income. The tax rule applied here is same as of debt funds – 20% long term capital gains with indexation benefit

Investing Options for Short Term and Medium Term

If you are looking for investing options for short term or medium terms like for, e.g., three months to three years, you can invest in

  • Close Ended Debt Funds
  • Banks Fixed Deposits
  • Corporate Fixed Deposits

Many retirees want to pursue their dreams once they are free from their job; hence a regular income is very crucial. If you design your portfolio smartly, you are sure going to be enjoying your golden period.

We hope we have answered your queries on what strategies are beneficial for you once you have retired. If you still have any unanswered questions or need help, feel free to contact us.

We would be glad to help you with your planning and investment related decisions.

Samiksha Seth

Content Strategist – Dilzer Consultants Pvt Ltd.