Vidya Kumar GettingYouRich
After retirement, income stops but expenses don’t and only saving cash is not enough as inflation erodes the value of money and some expenditure like medical expenses will rise. All of us may not be able to earn throughout our life but we definitely need money throughout to meet our living expenses. It is important to establish a regular income stream post retirement so that life after retirement is comfortable. There are various options in the market that allow us to earn regular income. Let us look at them and compare them:
| Factors | Nationalized Bank Fixed Deposits. | Varishtha Pension Bima Yojana | Postal MIS | Pension Plans – Jeevan Akshay VI |
| What is it? | The investor can invest money in a fixed deposit in a bank for a certain duration and earn interest on the same. | LIC has launched this pension plan. Its aim is to provide a regular income to the senior citizens of the country. | Post Office Monthly Income Scheme is a post office investment scheme that gives an assured monthly income. | Jeevan Akshay VI is a pension plan wherein the investor purchases the plan by paying a lump sum amount and gets annuities periodically. It is an annuity plan. |
| Key Features | Fixed Deposits (FDs) allows an investor to invest a lump sum amount and earn income at a higher interest rate than Savings Accounts. One can invest in FDs from a minimum of 7 days to a maximum of 10 years. Interest is calculated on a compounded basis. At the end of the FD tenure, the principal and interest is returned to the investor' | The individual has to be 60 years or more and for a monthly pension the minimum purchase price is Rs. 66,665 and the maximum is Rs. 6,66,665. The policy can be surrendered after 15 years for a full refund and at 98% in case it is surrendered for any emergency purpose before 15 years have passed. | POMIS is a risk free investment scheme with a minimum investment of Rs. 1500. The maximum amount is Rs. 4,50,000 for individual accounts and Rs. 9,00,000 for joint accounts. An interest of 8.5% p.a. is paid The maturity period is 6 years and a bonus of 5% is given if you remain invested in it for 6 years. | LIC’s Jeevan Akshay VI is a single premium pension plan wherein on payment of the sum, a regular income will be paid to the investor from the next time interval. A person between the ages of 30 and 85 years can purchase this plan from LIC with a minimum amount of Rs. 1,50,000. There is no upper limit. He/She will get the periodic annuity (monthly, quarterly, semi-annually or yearly) depending on the type of plan purchased. There are 6 plan options to choose from and the policy termination, refund of purchase price and nomination features depend on the plan chosen. |
| Payment Mode | The monthly interest can be credited to the savings account. It can be given quarterly, semi-annually or annually as well. | Payment is done through ECS/NEFT. | The payment can be taken from the post office or it will be transferred electronically to your bank account. | There are various modes of payment for getting the annuity. |
| Returns | Interest rate varies depending on duration, amount and Bank. | Interest rate is around 9%-9.38% | Interest rate is 8.5% per year. | The annuity payable for life increases at a simple rate of 3% p.a. The insured person is also eligible for bonuses declared after 6 years of the policy. |
| Risk | It is a less risky product and the investment up to Rs. 1,00,000 is guaranteed by the Deposit Insurance and Credit Guarantee Corporation (DICGC). | It is not a risky product as the Government backs it. | There is no risk involved. | It is a very low risk product. |
| Benefits | FDs with a tenure of 5 years or more qualify for deduction under Section 80C of Income Tax Act. Senior citizens get an additional 0.25%-0.5% on the regular interest rate. | A regular stream of income is provided to the senior citizen. If the policy owner dies, the entire purchase amount is refunded to the nominee. Premium paid for this plan for senior citizens, is exempt from service tax | It is a secure regular stream of income. The account can be transferred easily from 1 post office to another. | If the plan purchase price is Rs. 2,50,000 or more, higher incentives are available. Online purchase also gives a rebate by increasing the annuity rate. It is a hassle free investment option for senior citizens falling in the 10% tax slab. |
| What is not so good about it | Tax saving FD are illiquid Rate of Interest can change and inflation can erode the value of the interest earnings. | The maximum limit is not high enough. There are no tax breaks on it. It is illiquid in nature. | There is a penalty if you take the money out before the completion of 1 year of the investment. | The investor cannot take a loan against it. There is no option to surrender the policy. Inflation is not considered in the plan returns. |
| Taxation | The interest earned on the fixed deposit is taxable. If the interest income on a fixed deposit exceeds Rs.10000 in a year, tax will be deducted at source along with education cess. | Investments in the pension plan do not qualify for deductions. Interest earned in taxable at the tax slab that the investor falls under. There is a service tax of 3.09% on the premium amount. | It does not qualify under Section 80C. Income received is taxable as per the income slab that the person falls under. | Premium paid for purchase of plan is exempt from tax. 1/3rd of the maturity value received is exempt from tax Income received is taxable as per the income tax slab the person falls under |
| Comments | It is good for investors falling in the 10% income tax slab and those who do not mind the lock-in period. Investors in the higher income tax slabs will not find the returns attractive. | It is a good investment option for senior citizens looking for a regular stream of income with no risk involved. Some money can be invested so that investments are diversified. | There are many insurance companies with pension plans. The investor should compare different options and buy the one that suits his requirements. The returns do not match the inflation rate, which means you can lose money here. |
Options considered above are traditional and conservative. Ideally a post retirement portfolio can have a place for equity mutual fund also subject to appropriate risk appetite. Equity MFs can be partly leveraged to save on taxes and get regular dividends.
The author regularly writes on the personal finance and financial planning. She is associated with www.gettingyourich.com, a Mumbai based financial planning firm.
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