Retiring now? Make safety your cornerstone, say financial planners

The surging second wave of COVID-19 that seems to be more aggressive than the first is prolonging the uncertainty in the economy far more than anyone could have imagined in 2020 when the infection first struck this country. Those who are retiring from service should invest their funds in government-guaranteed schemes, advise many investment planners.

Against such a backdrop, it is only prudent to invest the lump sum that one receives on retirement in the form of provident fund, gratuity “in the safest schemes carrying reasonably high returns”, say investment planners.

First & last word

Laying out the Dos and Don’ts most investment planners recommend “absolutely safe schemes.”

“The three golden rules I recommend to anyone retiring now are – invest in absolutely safe schemes, invest for a long period that fetches the highest returns, and keep up the saving habit even after retirement since it will take care of the incremental cost,” said Amitabha Guha Sarkar, Kolkata-based investment adviser.

“We first recommend Senior Citizens Savings Scheme and PM Vaya Vandana Yojana. These two schemes are tailormade for retirees. Only after one makes full use of the provisions of these two schemes, do I recommend mutual funds for some people depending on their requirement of funds and existing cash flows,” said Chandramohan Mukherjee, an investment adviser.

Golden quadrilateral

According to Guha Sarkar, the four golden schemes that any investment planner would recommend to retiring persons are the following:

Senior Citizens Savings Scheme: It offers a 7.4% rate of return. The interest is payable quarterly and the maximum amount that can be invested is Rs 15 lakh.

PM Vaya Vandana Yojana: It is a scheme that is operated through LIC. It has a tenure of 10 years and offers a 7.4% rate of return. One can choose the interest payment options from monthly/quarterly/half-yearly/annually. This scheme is open up to March 2022.

Government of India Savings Bon (taxable) 2018: These instruments are of 7 years duration and offer a 7.15% return. These bonds have no upper limit of investment. These are sold through certain banks and the Stock Holding Corporation of India.

Post office monthly income plan: This instrument carries an interest of 6.60% and is of 5 years interest. The maximum amount that can be invested is Rs 9 lakh. As the name suggests, the interest is payable monthly and the instrument is sold through post offices.
The interest income on all four instruments is taxable.

Begin with a plan

Guha Sarkar strongly recommends that one should make a few calculations before retirement. These should typically include:

Calculate the amount likely to be received on retirement
Make an assessment of monthly expenses after retirement
Decide your investments in various schemes
Calculate your monthly income from the investments and try to match expenses
Do the tax planning so that tax liability is minimized

“After you retire an assured amount that now enters your bank account every month as salary will cease to come. Unfortunately, this year may not be considered a good year for retirement. Interest on bank deposits and various other fixed income schemes have come down considerably during the last one year when commodity prices have risen,” says Guha Sarkar.

“It goes without saying that the safety of retirement funds is of paramount concern. Risk-taking ability in any individual reduces considerably with advanced age when salary incomes stop permanently,” said Mukherjee.