The entire crux of retirement planning is based on ensuring a regular income flow in your retirement years.
If you do not have a regular source of income in your retirement years, then you will need to create one. Either you will have to take up work, or ensure that your investments, which you made in your working years, can generate enough returns to beat inflation and provide you with a decent level of comfort.
For sure, some of your mandatory expenses will cease to exist in your old age, such as rent, equated monthly instalments on car and home loans, children’s education and so on. Some of your discretionary expenses will also cease to exist, such as frequent holidays, eating out and so on. Your living and livelihood costs will also reduce, but your cost on medicines could drastically increase.
All said and done, you will need regular income in your retirement years, which your pension or savings might not suffice.
So, here are three such income options that can provide you with regular income in your retirement years to augment your pension or bank interest earnings.
Senior Citizens’ Savings Scheme: You need to be above 60 years of age to invest in this government scheme. You would also be considered eligible if you are aged above 55 years and have retired on superannuation. Retired military personnel can open an SCSS account after the age of 50 years.
To open an SCSS account, you need to visit your nearest post office or bank and submit the application form along with your ‘know your customer’ (KYC) documents, such as Aadhaar and permanent account number (PAN), and a cheque for the opening deposit. You can also include your nominees to the account.
The minimum investment has to be Rs 1,000 and in multiples thereafter. The maximum investment limit is Rs 30 lakh. The scheme has a lock-in period of five years. The interest rate is around 8 per cent per annum and is paid quarterly.
There are options of premature withdrawal with penalty. The account can also be extended for a further three years by submitting an application within one year of maturity year.
You can also transfer the account across the country.
SCSS comes under the ETE category in terms of taxation, as in exempt taxable exempt. The initial investment and the maturity is exempt from taxation under Section 80C of the Income-tax Act, 1961, but the interest earning is taxable. If the interest is more than Rs 50,000, then tax is deducted at source.
Post Office Monthly Income Scheme: This is a monthly income scheme (MIS) offered by India Post or the Department of Post (DoP). This is also a government-backed savings scheme, which offers regular monthly income to the depositors in the form of interest income on their deposits.
In case you need a regular monthly income, this is a better option than a bank fixed deposit as the deposit rate is higher as compared to bank fixed deposits.
The minimum investment is Rs 1,000 and in multiples of Rs 1,000, and the maximum investment is Rs 9 lakh for individual account and Rs 15 lakh for a joint account. The rate of interest is 7.10 per cent per annum. There, is however, a lock- in of five years.
These also fall in the ETE category. Investments in Post Office MIS does not qualify for tax deduction. Also there is no tax deduction at source.
This scheme allows premature withdrawal after a year of account opening, but, with a penalty. You cannot make a withdrawal before the expiry of one year from the date of deposit.
One benefit that MIS offers is that the account can be transferred from one post office to another.
Systematic Withdrawal Plan: A systematic withdrawal plan is the exact opposite of a systematic investment plan (SIP). It allows a mutual fund investor to withdraw his/her money from a mutual fund to his/her bank account in a phased manner. One can choose either a fixed amount per month or just the capital gains.
One thing to keep in mind though is that investments in mutual funds are subject to market fluctuations and in case your fund underperforms, the SWP will withdraw the money from your corpus to make you the payment. In other words, it would erode, or eat into your investment.
There is also a taxability component in SWP. In case of debt funds, if the holding period is less than three years, then the capital gains realised will be added to the overall income and taxed according to your income tax slab rate.
If the holding period is more than three years, then capital gains will be considered as ‘long-term’ and taxed at 20 per cent after indexation.
In the case of equity funds, if the holding period is less than one year, then the capital gains realised will be taxed at 15 per cent, while if the holding period is more than one year, then it will be treated as long-term capital gains (LTCG) and will be taxed at 10 per cent without indexation. Remember that this taxation is applicable on investments made upto March 31, 2023.
