Lump sum Investment options for Retirees/Senior Citizens | Where to invest my Retiral benefits to get Regular Income?

Retirement is a new stage of life, and some even say ‘life begins at retirement’. It is one of the most important life events for all of us.

Whether you are a salaried person or self-employed person, each one of us, one day or the other, would like to hang up one’s boots and come out of active working life.

Through out the working life (earning phase), we invest/save in various investment options and try to accumulate the desired retirement corpus.

If you are a salaried individual, you may make some mandatory contributions to schemes like EPF / NPS / GPF etc., On attaining the retirement age, you get lump sum amount / accumulated balance. You may get pension or annuity as well. You may also receive lump sum retiral benefits like Gratuity, leave encashment, bonus etc.,

Let us first understand the different phases of retirement planning :

• Accumulation phase – During this phase, you save and invest for your retirement. This is the stage where you invest to generate a decent corpus which is assumed to take care of you / your family during retirement. The earlier the accumulation period is in your life, the more advantages you will have (like the power of compounding).
• Transition to Retirement – This is an individual’s transition from work into retirement.
• Withdrawal phase / Wealth Consumption– During this phase, the retiree withdraws the income from the accumulated fund (Retirement fund / corpus) and enjoys the retired life. (We are discussing about this phase in this article….)

You put your heart and soul to accumulate your retirement corpus so that you can withdraw periodically from it and lead a comfortable retirement life. Accumulation of retirement corpus is only one part of your retirement planning.

It is equally important to invest/save this lump sum accumulated retirement corpus in the right and best investment options so that you can receive regular and periodic income to meet your living expenses.

“ No one wants to retire and then live like a pauper.”

So, what are the investment (or) saving options to invest lump sum amount (retiral benefits). What are the possible best investment options to get regular income? What are the best investment options for Senior citizens in India for 2024? List of safest investment options for retirees in India.

Best Lump sum Investment options for Retirees / Senior Citizens to get guaranteed regular Income in 2024 & beyond!

Below are the safest (very low risk) saving / investment options to get guaranteed regular income ;

Post office Senior Citizens Savings Scheme (SCSS)

• Features :
  • This is one of the best risk-free saving option for Senior citizens. Your capital is safe under this scheme.
  • The maximum investment limit is Rs 15 Lakh. The maximum deposit for senior citizen saving scheme has been enhanced from Rs 15 lakhs to Rs 30 lakhs with effective from 1st April 2023.
  • The maturity period is for 5 years. However, individuals can extend the maturity period for 3 more years by submitting an application. The application for extension of maturity should be given in the 4th year.
  • The interest income is payable on a quarterly basis.
  • The rate of return (interest rate) is fixed for the entire tenure.
  • For example : If you invest Rs 1 Lakh in this scheme, assuming interest rate @ 8.6%, you can receive around Rs 2,150 every quarter for 5 years.
• Tax Implications :
  • You can claim the invested amount as tax deduction u/s 80c (maximum limit is Rs 1.5 Lakh).
  • The interest income is taxable as per your income tax slab rate.

Post Office Monthly Income Scheme (MIS)

• Features :
  • This small savings scheme offers guaranteed monthly income for retirees / senior citizens. (Any resident Indian can invest in this scheme.)
  • The maturity period of PO MIS is 5 years.
  • The maximum investment limit in POMIS is Rs 4.5 lakh in single account and Rs 9 lakh, if you are investing in a joint account. 
  • According to Budget 2023, the single account holder limit for the Post Office Monthly Income Scheme (POMIS) has been increased from Rs 4 lakh to Rs 9 lakh. The limit has increased for joint holding from Rs. 9 lakh to Rs. 15 lakh.
  • Though rate of return (interest rate) is fixed for the entire tenure, it is lower than the interest rate offered on SCSS.
  • For example : If you invest Rs 1 Lakh in this scheme, assuming interest rate @ 7.5%, you can receive around Rs 625 every month for 5 years.
• Tax implications :
  • There is no Section 80C tax benefit on the invested amount.
  • The interest income is taxable as per your income tax slab rate.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

This scheme has now been closed for subscription. The last date for investing in government’s Pradhan Mantri Vaya Vandana Yojana (PMVVY) pension programme for senior citizens, managed by Life Insurance Corporation (LIC), was March 31, 2023. 

• Features :
  • This is a guaranteed pension scheme offered by the Govt of India.
  • Indian Citizens aged 60 years and above are eligible to invest in PMVVY.
  • The assured return is 8% p.a. Effective annually yield works out to 8.30% for monthly pension.
  • One time premium payment of around Rs 1,44,578/- fetches a monthly pension of Rs 1,000 for 10 years. (Related Article : ‘PMVVY – Govt’s new Pension Scheme – Review‘)
• Tax implications :
  • Pension is a taxable income, taxed as per your income tax slab rate.
  • No section 80c tax deduction is available.

RBI Floating Rate Savings Bonds (Govt of India Bonds)

• Features :
  • The interest rate of these bonds is not fixed. It is linked to the interest rate of the National Savings Certificate (NSC).
  • The interest rate on these bonds is reset every six months.
  • The maturity period is for 7 years.
  • There is no premature withdrawal option, but senior citizens get the option to prematurely withdraw money with a penalty after a minimum lock-in period. For those aged 60 to 70, the lock-in period will be six years. For those aged 70 to 80, the lock-in period will be five years. Those aged above 80 can withdraw their investment after four years from the date of investment.
  • If you opt for non-cumulative option, interest amount is payable half-yearly.
  • There is no maximum investment limit.
• Tax Implications :
  • The interest income is taxable as per your income tax slab rate.
  • There are no tax benefits available on the invested amount.
  • The interest income is taxable as per your income tax slab rate.

Life insurance Immediate Annuity plan (Pension Plans)

• Features :
  • You can use your retirement corpus to buy an immediate Annuity plan. (What is annuity rate? – In return for a lump sum; the money you have saved in your pension pot, an annuity provider (insurance company) will give you an annual income for the rest of your life / fixed tenure.)
  • Your insurance company may offer you different options under an Annuity plan. But, kindly note that the more the flexibility, lower the annuity amount you may receive.
  • The yields on annuity products offered in the market today are in the range of 5 to 9% only. This is low when compared to other conservative products like Debt mutual funds, Senior citizens Savings Schemes, Post office MIS etc., You may pick this option, if you do not want to worry about fluctuating interest rates for the rest of your life (if you want to avoid re-investment risk).
  • For example : LIC’s Jeevan Akshay VI Pension plan (option -1) offers Rs 8,930 as monthly pension (annuity amount at uniform rate for life-time) for a 60 year old person on the purchase price of Rs 1 Lakh.
• Tax Implications :
  •  Income tax benefit on the premium (purchase price of Annuity) paid as per Section 80CCC of the Income Tax Act (Maximum of up to Rs 1.5 Lakh).
  • The pension /Annuity amount is taxable as per your income tax slab rate.

Related article : LIC Jeevan Akshay VII Pension Plan (857) – Details & Review

Tax Free Bonds

• Features :
  • The interest income on these bonds is exempt from taxation under the Income Tax Act, 1961. These are usually issued by government-backed entities.
  • The rate of interest (coupon) offered on Tax-free bonds is generally bench-marked against the Govt Securities.
  • The maturity period can be in the range of 10 to 20 years.
  • The interest payment option is generally annual (but depends on the Issue terms & conditions).
• Tax Implications :
  • Interest income on Bonds is tax-exempt.
  • Section 80C tax benefit is not available.

Bank or Post office Time Deposits may offer you guaranteed and fixed income, but do note that the interest rates on these deposits can be lower than all the above options and also the interest income is taxable. So, you may avoid opting these.

Top Lump sum Investment Options with Low Risk

In case, you can afford to take some risk (or) can invest a portion of your retirement corpus in slightly riskier investment options then you may consider below investment avenues. You can get fixed and slightly better regular income from these options, but there are associated risks like ‘default risk’ with these options.

You may get attracted by better interest rates but kindly do not invest your entire retirement corpus in these investment options and even if you are investing a portion of your corpus, do consider investing in multiple deposit schemes or Issues which have good credit rating. Do note that these are not completely risk-free.

• Secured Non-Convertible Debentures (NCDs) : Kindly go through this article for complete details on NCDs.
• Company Fixed Deposits : Kindly read this article on ‘how to choose best Company Fixed Deposits?‘

Lump sum Investment options in Hybrid – Debt Oriented Mutual Funds

You may consider below options which are tax-efficient (especially if you are in higher tax-bracket) and if your investment objective is to get better returns with moderate risk. Kindly note that returns are not guaranteed on Debt or Non-equity oriented mutual funds and you may lose your capital too.

Under Dividend option of these schemes, you may not receive the dividends regularly and the quantum of dividend amount may also vary. If you want to receive fixed and regular income, you may consider setting up Systematic Withdrawal Plan on these investments.

Lump sum Investment options with high Risk

You might have taken a Retirement, but do note that Taxes and Inflation will keep haunting you, they won’t retire. So, you need to keep an eye on them. You may have to invest a portion of your retirement corpus in investment options like Equity oriented balanced funds (or) regular Equity fund to get better Real-rate of return (inflation adjusted returns).

You need to give importance to both nominal rate of return and real-rate of return. The nominal rate of return gives you an idea of how your money/investment is growing, while the Real Rate of Return tells you how much your purchasing power is growing. The real-rate of returns is a very important factor to watch out for during the ‘Withdrawal’ stage of your retirement.

To get regular income, you may have to set up SWPs on these investment options. Kindly be aware of the tax implications as well, as SWPs are treated as normal redemptions. (Related article : Mutual Funds Taxation Rules FY 2023-24 (AY 2024-25) | Capital Gains Tax Rates Chart )

Other options :

If you already own a house and would like to derive a regular stream of income from it, you can consider ‘Reverse Mortgage‘ option.

In a typical mortgage, you borrow money in lump sum right at the beginning and then pay it back over a period of time using Equated Monthly Instalments (EMIs).

In reverse mortgage, you pledge a property you already own (with no existing loan outstanding against it). The bank, in turn, gives you a series of cash-flows for a fixed tenure. These can be thought of as reverse EMIs.

If one of the spouses dies, the other can still continue living in the house. If both die, the bank will give their heirs two options — settle the overall outstanding loan and retain the house, (or) the bank will sell the house, use the proceeds to settle the outstanding loan and give the rest to the heirs.

Important Points to ponder over

When you are devising a plan to invest your Retirement corpus, you may kindly keep in mind of the below points / factors ;

• If you are totally dependent on the income generated by your Retirement corpus, do give high priority to protection of capital and consider options that can give you fixed and guaranteed regular income.
• Do not invest your lump sum investment in only one Scheme (say one NCD issue or Corporate FD alone). Advisable, to diversify across various available and suitable investment options.
• If you can afford to take some risk, do consider an option like Systematic Withdrawal Plan of Debt mutual Funds, as this can be a better rewarding one and can be a tax-efficient option.
• As much as possible, be aware of the latest schemes (if any) offered by the Govt for Senior Citizens. These schemes generally offer interest rates better than the prevailing market rates. (Also, the company fixed deposits / NCD Issues may offer higher & special interest rates for senior citizens)
• Watch out for maturity period / lock-in period of your investment options, whether they are in-line with your requirements or not. Be aware of the pre-mature withdrawal options and penalties (if any).
• If you can afford to take risk, do not hesitate to invest at least a portion of your retirement corpus in investment options that can beat the inflation rate.
• In case, you have taken an early retirement, do devise your investment mix with right products as per your financial goals, investment objectives and time-frame.
• Do not ignore buying a new / continuing your existing Health insurance cover. (Related Article :’Best Health insurance plans for Senior Citizens‘)
• Kindly maintain sufficient ‘emergency fund‘ to meet any unforeseen contingencies.
• Try to diversify your investments. Do not invest heavily in one investment scheme.
• Last but not the least, write a WILL, so that your Assets are transferred to your beloved ones as per your will and wish.

You may take retirement, but taxes, inflation & expenses will be there to deal with….so be active in managing your finances..enjoy worry free retirement with good health and spend time with your beloved ones…Personal finance is more personal than it is finance, plan as per your investment requirements!

Continue reading :

1. Nominee or Legal heir : Who will inherit your Assets & Properties?
2. How to write WILL? (Sample WILL)

(Post first published on : 07-August-2017) (Post last updated on : 01-Oct-2023)