Where can a pensioner make money in
For retirees, making the best use of their retirement corpus that would help keep tax liability at bay and provide a regular stream of income is of prime importance.
Taking small cash sums from your pension pot - Money Advice Service
Building a retirement portfolio with a mix of fixed income and market-linked investments remains a big challenge for many retirees. The challenge is not to outlive the retirement funds - one retires at 58 or 60, while the life expectancy could be Here are few investment options for the retired to provide for their monthly household expenses.
The idea is to build a retiree portfolio with a mix of these products. As the name suggests, the scheme is available only to senior where can a pensioner make money in or early retirees.
SCSS can be availed from a post office or a bank by anyone above Early retirees can invest in SCSS, provided they do so within three months of receiving their retirement funds. SCSS has a five-year tenure, which can be further extended by three years once the scheme matures.
Currently, the interest rate in SCSS is 8. The rates are set each quarter and linked to the G-sec rates with a spread of basis points. Once invested, the rates remain fixed for the entire tenure. Currently, SCSS offers the highest are binary options haram returns among all comparable fixed income taxable products.
The upper investment limit is Rs 15 lakh and one may open more than one account. The capital invested and the interest payout, which is assured, has sovereign guarantee. What's more, investment in SCSS is eligible for tax benefits under Section 80C and the scheme also allows premature withdrawals. The interest rate is set each quarter and is currently at 7. Instead of going to the post office each month, the interest can be directly credited to the savings account of the same post office.
Taking small cash sums from your pension pot
Also, one may provide the mandate to automatically transfer the interest from the savings account into a recurring deposit in the same post office. The safety and fixed returns go well with the retirees, and the ease of operation makes it a reliable avenue.
However, interest rate over the last few years has been falling. Currently, it stands at around 7. Senior citizens get an extra 0. Few banks offer around 7. Therefore, instead of locking funds for a particular duration, an investor may spread the amount across different maturities through 'laddering'. It not only provides liquidity to funds, but also manages the 're-investment risk'.
If the investments fall in value, there might not be time for them to recover before you want to start drawing from your pot. Increasing workplace or personal pension contributions Making the most of your pension contributions in the years before retirement brings an immediate boost in the form of tax relief.
When the shortest-term FD matures, renew it for the longest duration and continue the process as and when various FDs get matured. While doing so, ensure that your regular income need is met, and deposits are spread across various maturities and institutions. For those looking to save tax, the five-year tax saving bank FD could be a better option.
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The investment made here qualifies for Section 80C tax benefit. However, such a deposit will have a lock-in of five years and early withdrawal is not possible. Even though the interest income is taxable, there is a set-off by the amount of tax saved at least in the year of investment.
Most banks offer a rate which is slightly lower than the non-tax saver deposit rates.
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So choose carefully, if you want to go for them. Mutual funds MFs When one retires and there is a likelihood of the non-earning period extending for another two decades or more, then investing a portion of the retirement funds in equity-backed products assumes importance.
Remember, retirement income through interest, dividends, etc. Studies have shown that equities deliver higher inflation-adjusted returns than other assets.
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Depending on the risk profile, one may allocate a certain percentage into equity mutual funds MFs with further diversification across large-cap and balanced funds with some exposure even in monthly income plans MIPs. Retirees would be advised to stay away from thematic and sectoral funds, including mid- and small-caps. The idea is to generate stable returns rather than focus on high but volatile returns. Debt MFs can also be a part of a retiree's portfolio.
Taxation of debt funds makes it a better choice over bank deposits, especially for those in the highest tax bracket. While interest on bank deposits is fully taxable as per the tax bracket A retiree can consider keeping a significant portion in debt funds also because of its easy liquidity.
Tax-free bonds Tax-free bonds, although not currently available in the primary market, can also feature in a retiree's portfolio. One may, however, buy and sell them on stock exchanges as they are listed securities. Retirees should keep a note of a few things before investing in tax-free bonds. One, they are long-term investments and mature after 10, 15, 20 years. Invest in them only if you are sure that you will not require the funds for such a long period. In the last two tax-free bond issues the effective yield, especially for high tax-bracket investors, compared favourably with taxable investment alternatives available at the same time.
Third, liquidity is low in where can a pensioner make money in bonds.
Usually, they are listed on stock exchanges to provide an exit route to investors but price and volume quoted at exchanges may play a spoilsport while off-loading them. Last, they usually offer annual and not monthly interest payouts hence may not meet a retiree's regular income requirement.
For example, in a declining interest rate scenario, a tax-free bond face value Rs 1, with a coupon rate of 8. Remember, the interest payouts are at the coupon rate of the bond, i.
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Immediate annuities Retirees could also consider the immediate annuity schemes of life insurance companies. The pension or the annuity is currently around per cent per annum and is entirely taxable.
There is, however, no provision of return of capital to the investor, i. There are about different pension options, including pension for lifetime for self, after death to spouse and post that the return of corpus to heirs.
The corpus is not returned to the investor under any pension option. The immediate annuity may not suit an investor who is capable of selecting and building his own portfolio. So it is better to diversify across different investments rather than invest in this scheme if you have the wherewithal to manage your own portfolio. This is also advisable as the returns offered on these immediate annuities are currently on the low side.