02 Jun 2018
In India, social security support on retirement funding or provision of pension is very limited or non-existential. The government supports senior citizens by providing additional facilities, rebates and exemptions. But beyond that, senior citizens have to manage their expenses. Here are some of the challenges:
The corpus requirement should be planned and accumulated during the pre-retirement phase. On retirement, one of the important decisions is investment of the retirement proceeds. In case you don’t get a pension, the primary objective of this investment should be to generate cash flow to support regular monthly income for years and fund specific goals such as children’s higher education, marriage and vacation. When selecting an investment or saving product, you should consider monthly or quarterly expenses, after factoring in inflation. You must extend the corpus for longest possible time, taking the increase in life expectancy of retiree and spouse, specific goal corpus requirement, tax efficiency of the instrument and liquidity of the product into account.
Traditionally, senior citizens invest in annuity plans of insurance, post office senior citizen saving scheme (POSS), bank fixed deposits and tax-free bonds. With rising inflation, supporting household expenses with traditional instruments such as POSS or bank FDs may become tough. Mutual funds offer a good investment opportunity.
Investment of retirement corpus can be planned in three steps: