To have a carefree retirement, you have to ensure that you have income in those years. While you may have pension, provident fund and gratuity, you may want to create more sources of retirement income to ensure financial security.
After years of working hard, you may want less to worry about your day-to-day expenses in the later years of your life.
Apart from regular needs, old age has health care expenses as well. It is, therefore, important to plan ahead for ways to generate income in these years.
Depending on your existing savings from years of employment, your needs and risk appetite, there are several options of income sources for your retirement years to choose from. Here are a few.
1. Pension Plans
This income source requires prior planning. These could be useful to those who have smaller "basic pay" element in their salaries as this would mean that their PF (provident fund) contributions over several years of employment will also be small.
In such cases, PF accumulation will also not suffice to beat inflation.
Apart from monthly income, pension plans come with death benefits, benefit to spouse after death, etc. However, there are so many pension plans in the market with varied complexities and benefits that it could become confusing to pick the right one.
Some of these also offer tax benefits, especially if it has life-insurance linked to it. It is important to pick the right one that helps you meet your financial needs in your retirement years with stable/guaranteed monthly income.
The choice should not be made on the basis of the tax-saving prospects alone as there may be other costs associated with annuity and other such pension plans.
2. Rental income
If you are far from retirement, investing in a second property for rental income could be a good low-maintenance source of income. In the initial years, revenue from rent could be even used to pay the mortgage for the house/commercial space.
In fact, now is a great time to purchase real estate, with low-interest rates on loans and a decline in property prices.
But, will have to spend some time on setting up the place.
Eventually, when you retire, you will have paid off the loan and be able to continue earning rent on the property. However, note that such capital assets come with maintenance expenses.
There could be a leak, termite issues, etc which needs to be taken care of. You will require to set aside a budget for such unexpected repairs as well as upkeep expenses like painting and plumbing.
3. Five-year tax-saving FDs
With tax benefit under section 80C of the Income Tax Act, these 5-year FDs are available at all banks and post offices. These provide guaranteed interest income with periodic payout option (monthly or quarterly) if a maximum amount of Rs 1.5 lakh is locked for a period of 5 years with the post office or a bank of your choice.
While these are safe and offer a guaranteed payout, these may not be your best bet at the moment with a sharp decline in FD interest rates due to COVID-19. You may regret locking your money for a long period of 5 years.
4. Mutual Funds - Monthly Income Plans (MIP)
Mutual Funds helps in diversifying portfolio without you having to select a bunch of stock/debt investment options yourself.
Mutual fund houses provide Monthly Income Plans (MIPs) that generate monthly incomes through a mix of debt and equity-based investments.
A significant part of the portfolio focuses on interest-bearing assets such as corporate or government bonds and the rest is invested in equity.
The low equity exposure in such mutual funds ensures that the monthly returns on the investment are more or less stable. These payouts may be made monthly, quarterly, bi-annually or annually.
Note that though these may have low equity exposure, these are still market-linked instruments and could face market-related volatility. The payouts are based on profits and will not always be steady.
5. A part-time job or small business
While most dream of never wanting to work again, some desire to stay active even after they turn 60 years of age. The idea may not be to earn a good income; it could simply be about getting out to go somewhere and be among people for a few hours of the day.
Senior citizens could engage themselves by working for NGOs like charity houses, which have relaxations on retirement age, less workload and also pay a decent salary.
If you have been postponing a hobby or interest that you can turn into a side business, in your retirement years you have ample amount of time to work on it for additional income.
It is always easier to secure retirement income if you plan ahead of time. You may want to add a good health insurance scheme in your planning to cover unexpected medical expenses.
Further, you also need to avail senior citizens cash benefits offered by the central, state as well as local governments.
The article is purely informational and is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.
About the author
Olga Robert is an M.Com graduate covering equity markets and personal finance for nearly three years. Her interests include tax planning, equities, DIY personal finance management and government schemes.