The fall in the interest rate has led to a fall in the amount of regular income for senior citizens. While there are several investment options available for senior citizens, not many are currently offering a rate of interest that can help most retired individuals sustain their household expenses. This is making senior citizens look for investment strategies that will not only help them fetch high returns but also keep their funds safe.
Two unique features of most of the investment options for senior citizens are:
a) They carry a fixed rate of interest, and
b) They are for a long tenure
Keeping these features in view, here are 5 key strategies that every senior citizen may follow:
1. Allocation of fund
Locking funds in investments for a longer duration may be futile. So, it is better to invest funds for short duration wherever possible. “ In current situation, senior citizens having investible surplus can look at allocation-based strategy instead of investing in staggered manner. Maximum allocation should be in short to medium duration (6 months – 3 years) investment options and they should avoid investing in long duration investment options including long term fixed deposit at present,” informs Harshad Chetanwala, MyWealthGrowth. This strategy holds true especially in the case of bank fixed deposits as currently the rate of interest is low in them.
The popular senior citizen investment options providing regular income payments includes Bank fixed deposits, Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office Monthly Income Scheme (POMIS), Senior Citizen Saving Scheme ( SCSS) and Floating Rate Savings Bonds 2020. One needs to compare the interest rate of those with similar tenure and then decide. “If the returns are less then there is risk of outliving the savings and this could result in dependency on other people to take care of their retirement,” says Chetanwala.
3. How much is the risk
Even though most of these fixed income investment options for senior citizens are backed by government guarantee, the risk exists in different ways. The bank FD is insured up to Rs 5 lakh in each bank including savings account balance. The debt also carries its own share of risks. “There are lot of senior citizens who prefer to invest in long duration debt funds, they should be careful about the duration of the debt instruments as longer the duration higher is the risk and the companies to whom that fund is lending money; this will help senior citizens to avoid credit and default risk,” says Chetanwala. And, also remember that fixed-income investments carry re-investment risk. Hence, it is better to stagger deposits across tenures.
4. Equity allocation
The life expectancy is increasing and the inflationary pressure may not be coming sown in a hurry. At low interest rate, the chances of eating into the corpus for a retired individual is high. Chetanwala says “In current scenario senior citizens should have a small allocation in equities as well. This will help them to generate additional returns as the returns potential from interest rate related investments may not always suffice the retirement needs throughout the years. This small allocation can be done at the early stage of retirement or from the money they do not need for a period of 5 to 7 years.” Therefore, one should remain invested in equity oriented investments by exposing some portion of their retirement corpus into equities.
5. Tax benefits
Wherever possible, a senior citizen may invest in any of these investments keeping their own tax slab in mind. The interest rate on many of the investments is fully taxable and thus adds to the income of a retired investor. Also, there are a few such as 5-years tax saving bank FD or Senior Citizen Saving Scheme ( SCSS) that provides section 80C tax benefit on investment. Senior citizens need to make use of tax benefits and simultaneously increase monthly regular income from the various investment options available to them.