Stress-Free Pension Minting – Hindu Business Line

Life begins at the age of sixty! After a long career, you finally look joyful at retirement, at the beginning of a new stage. But as you adjust to retired life, the main task you face is making regular income from your savings, especially since there will be no more salary streams.

Since interest rates are hardening in light of the high inflation that is currently prevailing, it is critical that you invest your credit in such a way that your cat does not wear out.

Here’s how you can do this vital task.

assumptions

Before getting into the avenues of investing and also determining the asset allocation itself, it is important to put some assumptions in place.

– You have Rs 1 crore in retirement benefits.

– There is no retirement income you receive.

– We assume that you already have your own medical insurance policy with sufficient coverage – not that of your last employer – that also covers your spouse

– You have already paid off all your loans and have no obligations

No major financial commitments outstanding such as a child’s college education or marriage. Even if any of them are pending, we will assume that you have made provisions for them separately.

This is not a comment on whether ₹1 crore is enough for your retirement, but an asset allocation exercise to improve your portfolio returns. without taking too much risk.

Wide customization

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First, you have to set aside $10 lakh as an emergency fund. It can be held in any liquid fund or money market (Aditya Birla Sun Life Money Manager and SBI Savings). You can also choose to keep the amount in your savings account at a bank that offers higher interest to maintain large balances. Our choice would be IDFC First Bank. The main factors for investing in these are safety and liquidity, not return maximization.

Given that this is an emergency fund, it should only be used in case of necessity. It must be renewed if there is any withdrawal.

Then, part of the portfolio should go towards stocks even after retirement. We suggest 20 percent at least. Therefore, he set aside 20,000 Egyptian pounds for stock investments.

You can choose large-cap index funds and solid hybrid mutual funds for this.

Our options would be the UTI Nifty 50 Index Fund and the ICICI Prudential Equity & Debt Fund. The plug-in hybrid and plug-in hybrid, as a category, have generated more than 13 percent in revenue over the past 10 years.

Even if we assume 10 percent returns over the long term, your investment will double every seven years.

You can make profits in the long term and keep only the original investment amount in these funds. These profits can be redistributed into appropriate fixed income options.

You can make this $20 investment over a period of 1-2 years.

This leaves $70 lakh to generate your regular income. Here are six ways to distribute the amount.

regular income options

When defining the avenues, we took the safety aspect into account. The threshold for returns was set at 7 percent – only those investments offering above this level of return were considered.

Senior Citizen Savings Plan (SCSS)

SCSS is a great tool for retirees. It is a very safe investment option that is largely available to those 60 and over. With some conditions, entry at 55 is also allowed. SCSS is like a fixed deposit with guaranteed returns.

The The interest rate offered is 7.6 percent per annum. Interest payments are made each a fourth. The interest rate is reviewed every quarter by the government.

You can open an account at the post office in your area. SCSS account is offered by ICICI Bank, State Bank of India and Bank of Baroda among a few others. But you will have to visit the bank branch physically as there are no facilities to open it online.

The maximum amount you can invest in a SCSS account is $15,000. We suggest that you use the full limit and invest EGP 15,000 in it.

At 7.6 per cent, you would earn £28,500 interest each quarter. These payments are generally made on the first of January, April, July and October each year.

SCSS account works for five years. You can extend it for another three years at maturity, and it can only be done once.

Investments of up to INR 1.50 are eligible for deduction under section 80c of the Income Tax Act.

The interest earned is added to your income and is taxed at the applicable bracket.

Early closing is permitted with penalties. No interest is paid if you withdraw within a year of opening the account. If you want to withdraw money between years one and two, 1.5 percent of the principal amount is deducted as a penalty. For years 2-5, withdrawals are penalized with a 1 percent reduction of the principal amount and the balance is paid.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

It is a policy introduced by the government and administered by the LIC to provide pensions to those aged 60 and over. The scheme, which was launched in 2020, has been extended till 31st March 2023. It is an unrelated, non-participating scheme supported by the Government of India. The offered interest rate is 7.4 percent per annum.

The scheme mostly works as a deposit with periodic payments. You can even invest Rs 15 lakh ($1,448,086 plus taxes) in it.

We suggest you invest the entire sum of 15 lakh in it. For this amount, you would receive an annuity of €111,000 or £76.6 per €1,000 ($1,448,086 USD) purchase price.

Monthly, quarterly and semi-annual payments are also available.

investment for ten years. At the end of 10 years, you get back the purchase price. If there was any unfortunate event 10 years ago, the purchase price is given to the candidate.

The interest paid by the system is fully taxed in the applicable panel. There are no tax benefits or discounts available with this system.

You may close the account prematurely only for exceptional reasons, such as to treat any illness of yourself or your spouse. The refund value is set at 98 percent of the purchase price.

Fixed deposits of the most important non-bank financial companies

After the hike in the repurchase rate from May this year, many non-bank financial companies (NBFCs) have increased interest on their deposits. They come at different times. Bajaj Finance and HDFC Senior Citizens offer the best rate at 7.85 percent (44 months) and 7.75 percent (45 months) respectively. These are for annual deposit payment options.

Each of the above deposits carries the highest AAA credit rating. Therefore, timely payment of interest and principal amount is ensured. You can also get monthly, quarterly or semi-annual interest payments on these deposits, but the rates are slightly lower.

You can set aside $10 lakh – ₹5 lakh for both Bajaj Finance and HDFC deposits.

You will get an annual interest payment of €78,000 by investing in these two deposits.

As with other options, the interest is taxed at the applicable tax board.

government securities (g-secs)

Retirees can also look into government securities or bonds. Many government bonds trade in large volumes. These can be purchased via the RBI Retail Direct portal. It is the safest investment, since government securities do not have credit risk. Since it is guaranteed by the King, you are sure to get interest payments.

With interest rates rising over the past several months, the yield on government bonds (10 years) has touched 7.6 percent levels. But yields have softened in recent weeks, given the lower path of inflation and expectations of lower interest rate hikes in the future.

These government securities pay interest twice a year, which can act as your pension.

You can consider 07.26 GS 2032, which is available at a yield of 7.28% and 07.54 GS 2036 which is trading at a yield to maturity of 7.43%. There are others with a longer maturity, but the yields are only slightly higher and not as attractive.

You must understand the difference between a return and a coupon.

You will pay 07.26 GS 2032 coupon of 7.26 percent. This will be the interest payout rate. So, for an investment of £10 lakh, you will receive a total of $72,600 per annum in two semi-annual instalments. But the yield is 7.28 per cent because you can buy the bond for less than the original issue price of Rs 100.

Your purchase price will decide your return.

Also, you will only get these returns if you hold the bond until maturity. You can sell the bonds early if you wish, but this may result in lower returns for you.

Interest payments on these bonds are taxed in your slate. You will pay capital gains tax on the sale of these bonds at the rate of 10 percent if you hold them for a year or more.

You can invest $10 lakh in g-secs.

The g-secs traded and their rates are available on the Clearing Corporation of India website. If you’re smarter, you can also choose to invest in the primary market for g-secs through auctions conducted from time to time through the RBI Retail Direct platform.

RBI floating rate savings bond

RBI floating rate savings bonds 2020 are taxable instruments.

The interest rate on these bonds is linked to the interest offered by NSC (National Savings Certificate). An additional interest of 35 basis points is given on these bonds.

NSC currently offers 6.8 interest annually. So, RBI bonds give 7.15 per cent.

Interest is paid twice a year – in January and July. These bonds last for seven years.

Early withdrawals are only allowed for seniors. The lock-up period is reduced by one year for every 10-year plank, starting with 60.

The interest paid is taxable in your applicable panel.

You can apply for these bonds at banks like SBI, Bank of Baroda, HDFC Bank, ICICI Bank, Axis Bank, and others. You may have to visit a bank branch to purchase these bonds.

These bonds are also available on the RBI Retail Direct platform.

You can invest $10 lakh in these debentures to get an income of Rs 71,500 in two instalments. I

immediate annuity

This is a product offered by insurance companies. You pay one premium (the purchase price) and the insurance company pays you a pension for your life. The purchase price is returned to the candidate upon any unfortunate event. The returns (XIRR) offered by most insurance companies are not that much. Go through the quotes available at politics bazaar, HDFC Life Insurance’s spot annual premium alone exceeds the 7 percent threshold. It provides a return of 7.07 percent if the annuities continue for 15 years and approximately 7.1 percent if the time frame is 20 years. Annual payments are considered.

Given that you can lock in the life rate, you can invest $10 lakh in it.

Increase your payments

There is always the risk of reinvestment — the possibility of having to invest at lower rates once an existing option matures — in fixed income investments. Even still, if you’re smart about your feet, you can improve your returns somewhat, without risking too much. As mentioned earlier, take profits from your investments in stocks once every 5-7 years, redistribute the returns in fixed income instruments to your investment group and strengthen it. This will help you get reasonable payments even if interest rates drop. In addition, if you are retired through mutual funds or have other investments in mutual funds over your working years, you can redistribute those savings into less volatile funds in the debt category such as banks and PSU debt funds or corporate bond funds and start systematically withdrawing ( SWP) to supplement your retirement needs. Keep in mind that these withdrawals will be subject to short-term capital gains tax if you initiate SWP immediately upon investment. Hence, moving the money into stable debt funds at least 3 years before retirement. You can also adjust the model allocation of Rs 1 crore to include SWPs for mutual funds if you have a higher risk appetite.

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