You need to take care of your financial life after retirement. Having an independent financial life is important after retirement. We give you a product line-up to choose from.
Fixed income plans
In the fixed income category, there are four products to choose from: Senior Citizens' Savings Scheme (SCSS), five-year bank fixed deposits (FDs), Post Office Monthly Income Scheme (Pomis) and annuities, pension products that give a periodic stream of income, offered by life insurance companies. Since none of these instruments offer a tax break on the returns, the way to prioritise them is in the order of decreasing returns.
Bank FDs: In the current scenario, FDs top the list. For instance, IDBI Bank Ltd is offering senior citizens 10.3% per annum on FDs with tenors of 5-10 years for contributions up to R1 crore.
SCSS: It gives you an assured rate of 9% per annum for five years, which can be extended by another three years. It is almost a must-have for senior citizens seeking regular income.
Pomis: This offers a return of 8% per annum, payable monthly. It adds a bonus of 5% on the principal amount taking the net yield to 8.9%. However, you would get more in FDs and SCSS.
Annuities: These are mostly available through pension plans. You invest in a pension policy and on maturity you use the corpus to buy an annuity. Only few insurers offer immediate annuity products, which you buy from ready corpus.
Non-convertible debentures (NCDs): NCDs are bonds issued by companies wanting to raise money. However, they are not risk-free products.
Monthly income plans (MIPs): Generally offered by mutual fund companies, MIP is a misnomer as dividend payout is not guaranteed. Dividends, if any, are payable yearly, quarterly or monthly.
Fixed maturity plans (FMPs): FMPs invest largely in fixed income securities such as certificate of deposits (CDs), commercial papers (CPs), money market instruments and corporate bonds. These are available for tenors ranging from three months to three years.
For asset-rich-cash-poor senior citizens, the reverse mortgage product is an effective post-retirement investment vehicle. Here the bank keeps your house as collateral and pays you the value of your house in EMIs. Although technically the bank owns the house, you can live in it till you and your spouse are alive. On death, the bank can sell the house. But the first offer for sale is made to the legal heirs. If the heirs refuse, the bank sells the house to a third party and pays the difference, if any, to the legal heirs.