What Are The Best Fixed Income Options Post Retirement?

Post-retirement, one of the primary financial goals is to ensure a steady and safe income stream to meet daily expenses and maintain a comfortable lifestyle. Fixed-income investment options are a popular choice for retirees as they offer predictable returns, capital preservation, and low risk. It's essential for retirees to select the right fixed-income options based on factors like safety, liquidity, and tax efficiency to maximize their post-retirement income.

Best Fixed Income Options Post Retirement

Senior Citizen Savings Scheme (SCSS):

Overview:

The Senior Citizen Savings Scheme (SCSS) is a government-backed scheme available to individuals above the age of 60. It offers regular income and is one of the most preferred fixed-income options for senior citizens.

Interest Rate:

SCSS offers an attractive interest rate (currently around 8% per annum, subject to change).

Key Features:

• Quarterly interest payments.
• Tax benefits under Section 80C (up to ₹1.5 lakh).
• Safety: Backed by the Indian government.
• Tenure: 5 years (with an option to extend by 3 years).
• Liquidity: Can be prematurely withdrawn, subject to a penalty.

Best For:

Retirees seeking regular income and safety.

Post Office Monthly Income Scheme (POMIS):

Overview:

The POMIS is a government-backed savings scheme that offers monthly payouts. It is an excellent option for retirees looking for regular monthly income.

Interest Rate:

The interest rate is usually around 6.6%-7.4% per annum (subject to change).

Key Features:

• Monthly interest payments.
• Maximum investment of ₹4.5 lakh for individuals and ₹9 lakh for joint accounts.
• Taxation: Interest is taxable, but there are no upfront tax benefits.
• Tenure: 5 years.
• Liquidity: Premature withdrawal allowed with penalty.

Best For:

Retirees who want a monthly income but can tolerate some tax liability.

Fixed Deposits (FDs):

Overview:

Fixed Deposits are one of the most popular and safest fixed-income options, offering guaranteed returns for a fixed tenure. They can be availed from banks, post offices, and financial institutions.

Interest Rate:

Banks typically offer interest rates ranging from 5% to 7% per annum, with senior citizens receiving higher rates (usually 0.25% to 0.5% more).

Key Features:

• Interest payouts can be monthly, quarterly, or annually, based on preference.
• Safety: Fixed deposits are insured up to ₹5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
• Liquidity: Premature withdrawal is allowed, subject to penalties.
• Taxation: Interest is taxable, but tax-saving FDs (5-year lock-in) offer benefits under Section 80C.

Best For:

Retirees looking for safety and flexibility in income.

Annuity Plans:

Overview:

Annuity plans, offered by insurance companies, provide a fixed monthly income for the lifetime of the annuitant. This is an ideal option for retirees who want guaranteed income for life.

Interest Rate:

Rates vary depending on the insurance provider and type of annuity but typically range from 5% to 6.5%.

Key Features:

• Lifelong income.
• No market risk.
• Various options: immediate annuity, deferred annuity, or annuity with a lump sum payout.
• Taxation: Annuity income is taxable as income.

Best For:

Retirees seeking lifelong security and regular income.

Pension Plans:

Overview:

Pension plans are retirement-focused insurance products that provide regular income during retirement. These can be either traditional pension plans or unit-linked pension plans.

Interest Rate:

The returns depend on the type of pension plan; traditional plans offer guaranteed returns, whereas unit-linked plans are market-linked.

Key Features:

• Flexible payout options: monthly, quarterly, or lump sum.
• Tax benefits under Section 80C.
• Safety: Depends on the type of plan.
• Liquidity: Some plans offer partial withdrawals after a certain period.

Best For:

Retirees who want a combination of safety and long-term growth.

RBI Savings Bonds:

Overview:

The RBI Savings Bonds are government-backed bonds that offer a fixed interest rate and are considered a safe investment option.

Interest Rate:

The current interest rate for these bonds is around 7.75% (subject to change).

Key Features:

• Interest payouts can be either annually or on maturity.
• Taxation: Interest is taxable.
• Tenure: Bonds are available for 7 years.
• Safety: These bonds are backed by the Reserve Bank of India.

Best For:

Retirees looking for guaranteed returns and tax-efficient investments.

Tax-Free Bonds:

Overview:

Tax-free bonds issued by government agencies like NHAI, IRFC, or PFC offer tax-free interest income. These bonds are a good choice for retirees who want to invest in long-term, fixed-income options.

Interest Rate:

Typically around 6% to 7% per annum.

Key Features:

• Tax-free interest.
• Liquidity: Bonds can be sold in the secondary market.
• Long-term: Typically issued with a 10 to 20-year maturity period.

Best For:

Retirees looking for long-term, tax-free income.

Example:

Mr. Sharma, a 65-year-old retiree, has ₹30 lakh in savings and wants to ensure a steady income post-retirement. He invests ₹10 lakh in SCSS, ₹10 lakh in fixed deposits, and ₹10 lakh in an annuity plan. This combination provides him with quarterly interest from SCSS, monthly payouts from fixed deposits, and lifetime income from the annuity.

Conclusion:

For retirees, the best fixed-income options combine safety, steady returns, liquidity, and tax benefits. Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), Fixed Deposits, Annuity Plans, and Pension Plans are excellent choices, depending on individual financial goals. Diversifying between these options can help retirees balance regular income and capital preservation while optimizing tax efficiency.