N.M Singh, a 57-year old Railway Officer from Mumbai has query that is common for someone of his age, "On retirement when I receive my payment in a lump-sum where will the best place to invest be? It should give me maximum security and consistent returns."

 

If there are two things a person wants after retirement, they are security of returns and consistency. And Avinash Nair from Chennai mirrors this feeling. He says, "With currently prevailing low interest regime and higher inflationary tendency, which investments for retirement can safeguard erosion of capital and at the same time generate reasonable income after providing for income tax?"

 

The capacity of a person to take risks after retirement drops drastically because he is no longer capable of working to earn a living. In such a scenario, he needs to plan for every need and every contingency. Moneycontrol spoke to experts to find out how a retiree can enjoy life after retirement, without the hassles of worrying about money.

 

Meet liquidity

Firstly, it is necessary to build a cushion for your regular expenses. You can do that by keeping funds equivalent to 4 to 6 months of your monthly household budget in cash and bank's savings account. Bank savings accounts will give you an interest of 3% per annum, but they offer highest liquidity. You can withdraw your money at any time.

 

Your routine expenses

Retirement means that your regular income like your salaries would come to a halt and you would have to plan for inflows yourselves by structuring your corpus in an appropriate manner. Certified Financial Planner Gaurav Mashruwala recommends two avenues that provide risk-free regular income streams, "Firstly, you can invest in the Senior Citizen Savings Scheme (SCSS) and secondly, the post office monthly income scheme."

 

SCSS offers an interest of 9% per annum. You can choose to receive this interest either monthly, quarterly, half-yearly or yearly. This interest is however taxable and the principal invested in this scheme will be locked-in for at least 5 years. On the other hand, post office monthly income schemes offer interest of 8%, which is taxable. The lock-in in this case is 6 years.

 

If you can take a little bit of risk, then you can opt for the Monthly Income Plan offered by Mutual funds. These have an element of equity to boost returns. The returns on these vary from 6-8% per annum and these returns, in the form of dividends are tax-free. You can also buy an immediate annuity product from Life Insurance Corporation.

 

Prepare for medical needs

While a lot of expenses like routine conveyance disappear in retired life, some others like medical expenses escalate. The biggest protection against huge medical expenses is medical insurance. If you don't have a medical insurance policy, take one soon.

 

Besides mediclaim, you also need to build a fund for medical emergencies not covered by mediclaim. Mashruwala suggests, "For this, you need to invest in market neutral products where you must a market risk and manage inflation risk. Floating rate funds are the best bet here."

 

The amount you would put into this would depend on your individual needs.

 

For long-term planned needs

Besides your regular income needs, you may also need lumpsum funds at regular intervals, either to make a travel or to make a gift to your grandchildren. In such case, your investment strategies can be planned according to your time horizon.

 

If you need some funds after 3 or 4 years, the best place to invest would be in bank fixed deposits and bonds. These are secure instruments that offer returns between 5-6% per annum. If you are looking at a longer-term horizon, you can venture into equities. Equities require at least 5-7 years to be able to give reasonably good returns while riding markets booms and busts. These are also the most tax friendly instruments today. Dividends are tax-free and so are long-term capital gains taxes. If you hold your equity funds for more than one year, you don't pay any tax on sale. If you sell them within a year, you pay 10% tax.

Get a quick snapshot of all schemes with comparisons on page 2