Last week, we talked about the importance of saving as well as investing. The good news is, it’s easier to understand than you think. The bad news is that people have to do it longer than they think.
Investments are to secure the future and, in every person’s future, there will be a time when they’re not actively able to bring in income. This may be due to retirement, loss of a job or lack of immediate cash flow. The truth is that it’s never too early to start planning for that time. You may be aware of this or how to do it but it is equally important to start helping close loved ones, like your parents, plan for theirs.
Even if they hold/held a government job and are guaranteed a pension, that pension still might not be enough to live comfortably or maintain their present lifestyle. And don’t forget to account for increased life expectancy as well as inflation.
Though information about what to invest in as preparation for retirement is readily available, it can be hard to understand or access if your parents aren’t tech-savvy. Look into options carefully and start taking steps towards building a financial cushion to significantly reduce any financial pressure as your parents approach retirement.
One thing to keep in mind is that, depending on what your parents’ financial situation is, they will need to be a little more conservative or aggressive with how their money is invested. For example, someone who is going to be getting a guaranteed pension can take more risks with investing than someone who is not guaranteed one. Continuing to invest intelligently even after hitting retirement will only ensure further financial stability.
To that end, here are some of the best investment plans available for senior citizens in India.
1. National Pension Scheme (NPS)
A great option for those who want to get a head start on saving for their retirement, since the eligibility age for the NPS is from 18-65, with the possibility of an extension up to 70. Returns from the NPS are generated by investing in either equity or debt funds, depending on your choice, which is why there’s no fixed interest rate. Investing in equity funds will naturally generate higher returns (if you don’t know what equity funds are, check out our Beginner’s Guide to Investment)
60% of the NPS corpus (principal amount) is tax-free, while the remainder must be spent on purchasing an annuity (a monthly pension given to you in exchange for a lump sum of money). Moreover, NPS investments are tax-deductible up to Rs. 1.5 lakhs under Section 80C and an additional Rs. 50,000 is deductible under Section 80CCD (1B).
2. Senior Citizens Savings Scheme (SCSS)
A government-regulated scheme that allows individuals over the age of 60 (or 55 if they invest within a month of taking early retirement) to invest. The capital is entirely safe, the interest is relatively higher at 8.6%, and it only gets higher since it is revised on a quarterly basis (though the interest rate is fixed once you invest).
The maximum amount you can invest is Rs. 15 lakhs for a maximum period of 5 years, which can be extended for 3 years further if needed. Investments are tax-deductible up to Rs. 1.5 lakhs under Section 80C but do note that the interest is taxable. You can also make premature withdrawals, but this can cost you a penalty.
3. Post Office Monthly Income Scheme (POMIS)
This is a government-backed scheme and is best for individuals who have a low-risk appetite, like retired individuals who are seeking a monthly payout like a pension (though individuals aged 10 and above can invest in this scheme). NRIs are not eligible for this scheme. The current interest rate stands at 7.6%
The investment tenure is for 5 years and the amount at the time of maturity can be re-invested into the scheme if you’d like. You can have multiple accounts in the scheme but there is a cap on the maximum amount you can invest, which is Rs. 4.5 lakhs for an individual account and Rs. 9 lakhs for joint accounts. Note that the interest received is taxable, nor will your investment be tax-deductible.
4. Fixed/Recurring Deposits
A popular choice for senior citizens, since the interest rate is up to 0.5% higher for senior citizens and the interest income is tax-free up to Rs. 50,000 (compared to the usual Rs. 10,000, and only forms savings accounts).
The investment tenure is for 5 years and investments are tax-deductible up to Rs. 1.5 lakhs, though the interest generated is taxable.
5. Public Provident Fund (PPF)
Though not specifically geared towards senior citizens (to know more about this scheme, please refer to our Beginner’s Guide to Investment), it is just as beneficial for senior citizens to invest in this scheme since the interest generated is tax-free, as is the maturity, and the interest rate is higher than average. A PPF account can continue to be extended in blocks of 5 years (whether you continue to contribute or not) and investments made during extensions are tax-deductible.
Though these are not the only investment options available for senior citizens, these are more ideal due to the lower risk to capital and relatively higher interest rates (though there are definitely options with higher returns out there, which we will get into soon).
As a last note, it is important to keep in mind that the biggest expense that eats into the savings of senior citizens is unforeseen medical costs. If you’re going to such lengths to help your parents secure their future, you should also strongly consider investing in a robust health insurance plan with maximum coverage. This cost justifies itself over time and is a smart way to ensure that you don’t have to withdraw from any ongoing schemes or plans early.