With Dad's retirement around the corner, I was researching to plan investments for him. Sadly, Indian markets don't have many, good and beneficial plans for senior citizens. Still, like my dad, who is always afraid of private financial firm products, always had his trust in LIC and more-govt centric products and that's totally fine, I guess. Given his very low-risk profile where he is worried about losing every single penny, I have picked best in the market which any Senior citizen can opt for. Let's start!
Initial Discussion
A simple google search will definitely list so many websites spitting out the list of best products out there. The best-handpicked products we will talk about in this blog:
Indian Post Office's Senior Citizen Savings Scheme (SCSS)
Post Office's Monthly Income Scheme (POMIS)
LIC's PM Vaya Vandana Yojana (PMVVY)
These are the instruments/products we will use to plan investments and discuss their features, why they are the best and safe choice for any Senior citizen.
For more Details for SCSS and POMIS: https://www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx
For more details for LIC's PMVVY: https://licindia.in/Products/Pension-Plans/Pradhan-Mantri-Vaya-Vandana-Yojana1
Let's Start Planning!
When your retirement corpus is less than or equal to ₹ 10 Lacs
If the retirement corpus is less than ₹ 10 Lacs, reserve 50% of the amount for the Medical Emergency fund which can be stored in Savings Bank account or Liquid Funds. It should not be touched until a medical emergency arises!
Income from PMVVY Scheme -
7.45% of ₹ 3 Lacs - ₹ 22,350/year or ₹ 5587/quarter or ₹ 1863/month
Earnings - Regular Pension(if applicable) + ₹ 1863 + ₹ 650(savings interest) per month
When your retirement corpus is between ₹ 10 Lacs to ₹ 20 Lacs
The rule for Medical Emergency remains the same, however, we will increase the liquid/usable portion of the money, while increasing the portion of PMVVY.
Income from PMVVY Scheme -
7.45% of ₹ 10 Lacs - ₹ 74500/year or ₹ 18,625/quarter or ₹ 6208/month
Earnings - Regular Pension(if applicable) + ₹ 6208+ ₹ 1660(savings interest) per month
When your retirement corpus is between ₹ 20 Lacs to ₹ 30 Lacs
The extra component( ₹ 10 Lacs) will be used to fill PMVVY scheme and then SCSS.
Income from PMVVY Scheme -
7.4% of ₹ 15 Lacs - ₹ 1,11,000/year or ₹ 27,750/quarter or ₹ 9,250/month
Income from SCSS Scheme -
7.4% of ₹ 5 Lacs - ₹ 37,000/year or ₹ 9,250/quarter or ₹ 3,083/month
Earnings - Regular Pension(if applicable) + ₹ 12,333+ ₹ 1660(savings interest) per month
When your retirement corpus is between ₹ 30 Lacs to ₹ 40 Lacs
For extra corpus(₹ 10 Lacs) we will fill the SCSS portion
Income from PMVVY Scheme -
7.4% of ₹ 15 Lacs - ₹ 1,11,000/year or ₹ 27,750/quarter or ₹ 9,250/month
Income from SCSS Scheme -
7.4% of ₹ 15 Lacs - ₹ 1,11,000/year or ₹ 27,750/quarter or ₹ 9,250/month
Earnings - Regular Pension(if applicable) + ₹ 18,500 + ₹ 1660(savings interest) per month
When your retirement corpus is between ₹ 40 Lacs to ₹ 50 Lacs
Since we have already exhausted the PMVVY and SCSS limits, we will move to POMIS for a joint account( ₹ 9 Lacs) and single account (₹ 4.5 Lacs). Left extra for the discussion can be moved to savings/daily use account.
Income from PMVVY Scheme -
7.4% of ₹ 15 Lacs - ₹ 1,11,000/year or ₹ 27,750/quarter or ₹ 9,250/month
Income from SCSS Scheme -
7.4% of ₹ 15 Lacs - ₹ 1,11,000/year or ₹ 27,750/quarter or ₹ 9,250/month
Income from POMIS Scheme -
6.6% of ₹ 9 Lacs - ₹ 59,400/year or ₹ 14,850/quarter or ₹ 4950/month
Earnings - Regular Pension(if applicable) + ₹ 23,450 + ₹ 2000(savings interest) per month
When your retirement corpus is between ₹ 50 Lacs to ₹ 60 Lacs
When you have a corpus, anything greater than ₹ 50 Lacs, you get freedom outside your secure and constant income chunk, to invest and grow money.
Income from PMVVY Scheme -
7.4% of ₹ 15 Lacs - ₹ 1,11,000/year or ₹ 27,750/quarter or ₹ 9,250/month
Income from SCSS Scheme -
7.4% of ₹ 15 Lacs - ₹ 1,11,000/year or ₹ 27,750/quarter or ₹ 9,250/month
Income from POMIS Scheme -
6.6% of ₹ 9 Lacs - ₹ 59,400/year or ₹ 14,850/quarter or ₹ 4950/month
Earnings - Regular Pension(if applicable) + ₹ 23,450 + ₹ 2000(savings interest) per month
Year-End Income - ₹ 13,200 from (FD/RD at 6.6%) + ₹ 8000 (MF at 8% PA extrapolated over 3 years return) [Can be interpreted as ₹ 1800/ month]
When your retirement corpus is over ₹ 60 Lacs
Since we have already got a free hand over ₹60 Lacs to invest and grow money while having a steady income. Let's take an example of ₹ 80 Lacs Corpus.
In this case, Rest = ₹ 80 Lacs - ₹ 55 Lacs = ₹ 25 Lacs
Savings = 30% of ₹ 25 Lacs = ₹ 7.5 Lacs (plus fixed ₹ 6 Lacs)
FD = 20% of ₹ 25 Lacs = ₹ 5 Lacs
Bonds = 30% of 25 Lacs = ₹ 7.5 Lacs
ELSS = 20% of 25 Lacs = ₹ 5 Lacs
Earnings - Regular Pension(if applicable) + ₹ 23,450(PMVVY, SCSS, POMIS) + ₹ 4500(savings interest) per month
Year-End Income - ₹ 33,000 from (FD/RD at 6.6%) + ₹ 1 Lac (MF at 8% PA extrapolated over 3 years return) [Can be interpreted as ₹ 11,083/ month]
How might the planning change?
In my opinion, one should enter retirement with no extra expenditures like building a house after the retirement or paying off loans in the retirement years. So the first approach towards the planning will be to clear off any loans or pending EMIs.
One obviously realises that they are not earning salary like before (businessmen are way too sorted or way too disorganised about the retirement or they never retire). So taking loans or paying EMIs should be the last thing post-retirement years. Your spending capacity decreases and therefore, One should -
Clear off all loans if possible with a maximum of 40% of their retirement corpus and then use the template to plan the rest 60%.
Don't own a house yet? Then don't buy one, rent it out (Or stay with your kids!). You can't afford a loan at this stage. To understand why renting can be better? Check out: https://www.pandaandthegeek.com/post/should-you-buy-or-rent-a-house
Have high monthly medical bills? I would suggest creating a special fund allotment(liquid) where you save monthly/quarterly/yearly(like a SIP) for medicines and monthly treatments. One would suggest Mediclaim policies but honestly, most of them have very poor settlement rates and getting into paperwork is the last thing one wants to get in his/her old-age.
Rationale Behind the Planning
Let me point out the idea behind the planning pattern:
Risk Profile of a senior citizen is lowest as it's spending capacity is lowest due to no regular income.
Being aggressive with money is the last thing! If you had planned well before, you might be enjoying it's fruit already with better post planning suggested above.
To become independent, He/She who has spent his/her life living and earning with pride would like to do the same and try not to be dependent on anyone.
Have a steady income to meet daily needs, with the retirement corpus earning for oneself.
Medical/Health is a priority and should be for everyone post-60.
Getting the best of the market products and most secure out of them. Basically, one that gives my Dad peace of mind.
Why not other popular Options?
Many do suggest other options but I don't have much in their favour to say:
NPS: One can extend NPS beyond 60 years and stretch it till 70. Honestly, doesn't make sense for one who has retired and is in dire need of funds, should lock up their money for another 10 years. Moreover, if one enters post 60 into NPS which is 50% capped at equity and 50% debt, where debt needs time to perform and equity is uncertain in short duration.
Immediate Annuity Plans: These plans are literally taking your money and making money from your money and then give a fraction to you. For example, one of the plans I looked for, for a steady income of ₹ 20K/month for 10 years, they want from me ₹ 32 lacs approx as a premium to pay me ₹ 24 Lacs in 10 years and rest of the annuity will be paid as per some norms till the death (no guarantee of return of corpus even). If I need a guarantee for my corpus, I need to pay ₹ 45 Lacs to get the same scheme working. LOL! What a scam!
Conclusion
Hope this helps everyone who might be retiring soon or in coming years. Please help to spread the word to get this article to one who finds it helpful. Till then, Happy reading :)
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