Retirement planning: five options for guaranteed income


After working for several decades, a retiree looks forward to receiving retirement benefits which would usually include the provident fund amount, gratuities and other retirement funds. These retirement funds should be deployed in such a way that they help to meet regular income needs in the later years of life. Therefore, one should focus on a wise mix of post-retirement investments that not only provides regular income, but also ensures money security and liquidity, in addition to minimizing tax liability.

Here are some investment options for retirees to diversify their retirement pool.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Exclusively available from Life Insurance Corporation of India (LIC), Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a unique lump sum investment program for 10 years with an option to receive regular monthly, quarterly, half-yearly or annual income, in the form of of pension. Anyone over the age of 60 can invest a maximum amount of Rs 15 lakh (Rs 30 lakh with spouse) in PMVVY. For FY22-23, PMVVY will provide an insured pension of 7.40% per annum payable monthly. This insured annuity rate will be payable for the full term of the 10-year policy for all policies taken out through March 31, 2023.

Savings Scheme for Senior Citizens (SCSS)
The Old People’s Savings Scheme (SCSS) has a duration of five years, which can be extended for three years once the scheme matures. One can open more than one SCSS account, but the investment limit for all accounts taken together is 15 lakh. Currently, the interest rate is 7.4% per annum, payable quarterly and fully taxable. The investment in SCSS is eligible for tax benefits under Section 80C and the scheme also allows for premature withdrawals, but the tax benefit is then reversed.

Floating Rate Savings Bond
The Floating Rate Savings Bond, 2020 (taxable) has a term of seven years. Interest is paid twice a year, on July 1 and January 1 of each year. For floating rate savings bonds, the interest rate is equal to the interest rate on NSC plus 0.35%. The interest rate will continue to fluctuate over the life of the plan based on the NSC interest rate. There is no upper limit for investing in floating rate savings bonds.

Post Office Monthly Income Scheme Account (POMIS)
POMIS is a 5-year investment with a maximum cap of Rs 9 lakh in condominium and Rs 4.5 lakh in sole proprietorship. The interest rate is fixed quarterly and is currently 6.6% per annum, payable monthly. The interest rate remains fixed throughout the duration of the mandate. Interest earned in POMIS can be credited to a postal savings account and a money order can be provided to transfer the funds to recurring deposits at the same post office.

Fixed bank deposits (FD)
Currently, bank term deposit (FD) interest rates are around 6.5% and are looking to rise. Therefore, instead of locking in funds for a specific term, one can spread the amount over different maturities through ‘laddering’ to manage ‘reinvestment risk’. When the short-term FD matures, renew it for the longer duration and continue the process as various FDs mature.

Seniors get an additional 0.5% interest per year on their deposits, while some banks offer special deposits offering much higher rates on specific securities. For retirees who also want to save tax, the FD Five-Year Tax Savings Bank might be an option to consider.

Live off a pension
Pradhan Mantri Vaya Vandana Yojana purchased in FY 22-23 provides an insured pension of 7.4% per annum for the full policy term of 10 years

For floating rate savings bonds, the interest rate is equal to the NSC interest rate plus 0.35%

Investment in the Seniors’ Savings Program is eligible for Section 80C tax benefits

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