10 Tips On Making Your Retirement Corpus Last For More Than Two Decades

Abhishek, a 62-year old retiree, had saved diligently for his life after retirement. Besides his regular pension benefits, he had invested in fixed income instruments. Even after being well-prepared, Abhishek is a worried man these days. His monthly expenses are rising in tandem with the cost of essential items. He fears his retirement corpus may fall short of funds sooner than expected. Abhishek is not alone.

Rising life expectancy rates and an increasing cost of living have thrown retirement plans into disarray. Average years spent in retirement has increased to 15-20 years from 10-15 years earlier. Here are 10 options to extend the life of your retirement corpus beyond two decades.

Alternate Employment

If the aim is to maximise the retirement corpus the best way would be to augment it in the initial years of retirement. Divide your retirement years into two parts, the first 10-12 years and the rest of life. Alternative employment can be sought in the first phase to enhance the corpus, and to generate a steady income from it in the second phase of retirement. People are generally healthy in the first phase of retirement and can take up small assignments in those years.

Health Insurance

With the rising cost of medical care, a simple hospitalisation can soak up significant resources. The best way to protect from medical emergencies is to have a proper health cover. Health insurance should be taken at a young age when premiums are substantially lower. If you fail to take health insurance, a considerable amount will have to be kept aside for medical emergencies.

Senior Citizen’s Savings Scheme

One of the most popular investment options for senior citizens. Open only to people above 60 years, the scheme has a tenure of five years, extendable by three years. The government-sponsored scheme offers the highest post-tax returns among all comparable fixed income taxable instruments. Currently, SCSS offers an interest rate of 8.6 per cent per annum, which is fully taxable. However, the investment in the scheme qualifies for deduction under Section 80C of the Income Tax Act, 1961.

Mutual Funds

When planning for retirement, the impact of inflation should be kept in mind. Inflation erodes the value of post-retirement income such as pension, interest and dividend. Equity-linked products tend to give the highest inflation-adjusted returns among all financial assets. The aim should be to earn steady returns with manageable risk rather than high but volatile returns. Retirees can invest in equity mutual funds with diversification into large-cap and balanced funds.

Post Office Monthly Income Scheme

Retirement planning requires a clever mix of investments into fixed-income schemes and market-linked schemes. The POMIS is a five-year investment scheme with a monthly payment of interest. The scheme has a maximum cap of 900,000 rupees under joint ownership and 450,000 rupees under single ownership. Currently, POMIS offers an interest rate of 7.7 per cent, which is decided every quarter.

Bank Fixed Deposits

A popular savings instrument for retirees, fixed deposits are sought for safe and steady returns. Fixed deposits, however, should never be the first option for investments as inflation tends to erode returns in the long run. The interest income is taxable which diminishes the returns considerably. Senior citizens also receive slightly higher interest on fixed deposits.

Tax-Free Bonds

Tax-free bonds can be considered by a retiree if they can spare some fund for a long period of time. Though not available in the primary market, these bonds can be bought and sold on the stock exchanges. Tax-free bonds are issued primarily by government-backed institutions such as Indian Railway Finance Corporation Ltd (IRFC), Power Finance Corporation Ltd (PFC) and National Highways Authority of India (NHAI). However, they are long term investments and mature after 10, 15 or 20 years.

National Savings Certificate

A secure and low-risk investment option, it can be bought at any post office. It comes with two tenures—5 years and 10 years. There is no cap on investments, but only investments up to 150,000 qualify for tax deductions. Though it offers complete capital protection, it cannot offer inflation-beating returns like market-linked products.

Immediate Annuities

Pension income from existing schemes like National Pension Scheme can be augmented through annuity plans from life insurance companies. An investor has to deposit a corpus with the life insurance companies and is provided with a series of payments at a future date. However, the amount used to purchase an annuity scheme is non-returnable.

Physical Assets

A lesser-known instrument to garner regular income is a reverse mortgage of physical assets. If you own a house and are over 60 years, you can mortgage the house in return for regular monthly payments. The eligibility depends on age, the value of the property, interest rates and tenure of payout. The quantum of payout depends on tenure, which can be up to 20 years.

Source: Assetyogi.com