New Delhi: Monthly Pension Saving Rs 1 lakh after retirement is a common concern Senior CitizensTo achieve this goal it is necessary to plan carefully and consider various factors like inflation, risk appetite, returns, taxation and liquidity.
According to experts, assuming an expected return rate of 8-10%, a corpus of around Rs 1.2 crore to Rs 1.5 crore is typically required to receive a monthly pension of Rs 1 lakh.
Economic Times “To receive a monthly pension of Rs 1 lakh, senior citizens typically require an investment of around Rs 1.2 crore to Rs 1.5 crore. This estimate is based on an expected return rate of 8-10%,” said Soumya Sarkar, co-founder, Wealth Redefined.
Investment Options For senior citizens: Balance the risk and return
Investment options for senior citizens are determined based on their risk tolerance. Conservative investors generally prefer debt instruments, including Fixed depositPost Office Monthly Income Scheme (POMIS), Senior Citizen Savings Scheme (SCSS), RBI floating rate savings bonds, government securities and debt mutual funds. These options prioritise safety over high returns.
On the other hand, senior citizens with a higher risk tolerance and desire for better returns may consider equity-oriented mutual funds. “A balanced investment approach comprising both debt (such as fixed deposits or bonds, which are safe but offer lower returns) and equity (such as stocks or mutual funds, which are riskier but offer higher returns) is advisable in such cases,” Anand K Rathi, co-founder, Mirae Money, told ET. This balanced approach allows for a combination of stability and growth potential in the investment portfolio.
For conservative investors, the suggested allocation to generate a monthly pension of Rs 1 lakh could be:
S Sridharan, founder and CEO of Wallet Wealth LLP, recommends a conservative investment strategy for senior citizens seeking a monthly pension of Rs 1 lakh. This strategy involves investing in a combination of debt-heavy instruments with some equity exposure to maintain stable returns.
Senior citizens can invest around Rs 25 lakh in various fixed deposits, which currently offer interest rates of up to 7.75% at private sector banks and over 9.5% for select tenures at small finance banks. By spreading the FD corpus across various banks and investing in different capacities, senior citizens can enjoy quarterly payouts of Rs 46,875, which is equivalent to a monthly income of Rs 15,625, while ensuring high security through a DICGC cover of Rs 5 lakh on each FD.
The second option is the Senior Citizen Savings Scheme (SCSS), which offers an interest rate of 8.2% for the June-September quarter. According to Naveen Kukreja, co-founder and CEO of Paisabazaar, investing Rs 30 lakh in SCSS will yield Rs 61,500 every quarter (Rs 20,500 per month). “Keep in mind that senior citizens can claim a tax deduction of up to Rs 50,000 per financial year under Section 80TTB on interest income earned from bank FDs and SCSS investments,” says Kukreja.
RBI Floating Rate Savings Bonds, which are currently offering an interest rate of 8.05% per annum, can also generate regular income. By investing Rs 35 lakh in these bonds, senior citizens will get Rs 1,40,875 every six months, which is equivalent to Rs 23,479 per month. However, it is important to note that the interest rate of these bonds is not fixed and is revised twice a year.
For hassle-free monthly income with minimal risk, senior citizens can invest a lump sum of Rs 30 lakh in long-term debt funds and start a systematic withdrawal plan. Historically, these funds have given returns of 6-7% per annum, allowing senior citizens to earn Rs 16,865 monthly from this debt-oriented SWP for the next 20 years, while keeping their initial amount intact.
Finally, senior citizens can consider investing Rs 30 lakh in hybrid mutual funds such as Balanced Hybrid Mutual Fund, which has given a return of 9-11% per annum. At a 10% interest rate, senior citizens can get a regular pension of Rs 23,732 from this SWP for the next 20 years, after which they can get their deposits back.
To sum up, by investing a total of Rs 1.45 crore in the suggested instruments, the senior citizen can get a total monthly pension of Rs 1,00,201.
Moderate investors can invest more in equities while maintaining the safety net of fixed-income investments. Possible allocations could be:
According to Sridharan, for an investor with a moderate risk tolerance, a balanced portfolio consisting of both equity and fixed income investments could be an appropriate approach.
The investor can invest about Rs 10 lakh in fixed deposits, which will give him a return of 7.5% per annum, i.e. quarterly income will be Rs 18,750 or monthly income will be Rs 6,250. Apart from this, investing Rs 30 lakh in Senior Citizen Savings Scheme will give a monthly pension of Rs 20,500. Apart from this, investing Rs 35 lakh in RBI Floating Rate Saving Bond will give a monthly income of Rs 23,479.
Another Rs 35 lakh can be invested in a balanced hybrid mutual fund to initiate a Systematic Withdrawal Plan (SWP). Assuming a 10% annual return, this investment can provide a monthly income of Rs 23,732 for the next 20 years while maintaining the initial amount.
If the investor can tolerate more risk, he can consider setting up another SWP of Rs 30 lakh in large-caps. Equity Mutual FundsWith an estimated 12% annual return, this investment can generate a monthly income of Rs 28,198 for the next 20 years, with the initial amount being returned after a period of 20 years.
To sum up, with a total investment amount of Rs 1.35 crore, the investor can get a combined monthly pension of Rs 1,02,159.
Aggressive investors can make significant equity investments for higher long-term returns, while keeping some funds in safer investments. The suggested allocation could be:
An investor with a high risk tolerance can invest a significant portion of his portfolio in equities, aiming to generate superior returns over the long term, while maintaining a portion of his funds in more conservative investments. Senior citizens can allocate Rs 10 lakh to senior citizen fixed deposits, which offer a 7.5% return after tax, resulting in a monthly income of Rs 6,250.
Additionally, they can invest Rs 30 lakh in Senior Citizen Savings Scheme, which will give them a monthly pension of Rs 20,500 (Rs 61,500 per quarter).
The second option is to invest Rs 30 lakh in an equity-oriented hybrid mutual fund and start a systematic withdrawal plan (SWP). Assuming an annual return of 10%, this investment can generate a monthly pension of Rs 23,732 for the next 20 years, while keeping the initial amount safe.
Further, senior citizens can invest Rs 55 lakh in aggressive hybrid funds, large-cap mutual funds or flexi-cap mutual funds, which have historically given returns of 10% to 14%. By starting a SWP, they can receive a regular pension. Assuming a 12% annual return, this investment can provide a monthly income of Rs 51,696 for the next 20 years.
To summarize, with a total investment amount of Rs 1.25 crore, senior citizens can earn a combined monthly pension of Rs 1,02,178 by strategically allocating their funds across various investment options.
What should senior citizens keep in mind?
While investing in regular pension, senior citizens should keep in mind the LSR rule: Liquidity, Security + Stability and Returns. Liquidity gives the flexibility to withdraw money when needed, while stability ensures that the income continues for life. Security can be achieved through diversification across asset classes, and returns should be considered post-tax and inflation-adjusted. Proper nomination and succession planning is also important.
According to experts, assuming an expected return rate of 8-10%, a corpus of around Rs 1.2 crore to Rs 1.5 crore is typically required to receive a monthly pension of Rs 1 lakh.
Economic Times “To receive a monthly pension of Rs 1 lakh, senior citizens typically require an investment of around Rs 1.2 crore to Rs 1.5 crore. This estimate is based on an expected return rate of 8-10%,” said Soumya Sarkar, co-founder, Wealth Redefined.
Investment Options For senior citizens: Balance the risk and return
Investment options for senior citizens are determined based on their risk tolerance. Conservative investors generally prefer debt instruments, including Fixed depositPost Office Monthly Income Scheme (POMIS), Senior Citizen Savings Scheme (SCSS), RBI floating rate savings bonds, government securities and debt mutual funds. These options prioritise safety over high returns.
On the other hand, senior citizens with a higher risk tolerance and desire for better returns may consider equity-oriented mutual funds. “A balanced investment approach comprising both debt (such as fixed deposits or bonds, which are safe but offer lower returns) and equity (such as stocks or mutual funds, which are riskier but offer higher returns) is advisable in such cases,” Anand K Rathi, co-founder, Mirae Money, told ET. This balanced approach allows for a combination of stability and growth potential in the investment portfolio.
For conservative investors, the suggested allocation to generate a monthly pension of Rs 1 lakh could be:
S Sridharan, founder and CEO of Wallet Wealth LLP, recommends a conservative investment strategy for senior citizens seeking a monthly pension of Rs 1 lakh. This strategy involves investing in a combination of debt-heavy instruments with some equity exposure to maintain stable returns.
Senior citizens can invest around Rs 25 lakh in various fixed deposits, which currently offer interest rates of up to 7.75% at private sector banks and over 9.5% for select tenures at small finance banks. By spreading the FD corpus across various banks and investing in different capacities, senior citizens can enjoy quarterly payouts of Rs 46,875, which is equivalent to a monthly income of Rs 15,625, while ensuring high security through a DICGC cover of Rs 5 lakh on each FD.
The second option is the Senior Citizen Savings Scheme (SCSS), which offers an interest rate of 8.2% for the June-September quarter. According to Naveen Kukreja, co-founder and CEO of Paisabazaar, investing Rs 30 lakh in SCSS will yield Rs 61,500 every quarter (Rs 20,500 per month). “Keep in mind that senior citizens can claim a tax deduction of up to Rs 50,000 per financial year under Section 80TTB on interest income earned from bank FDs and SCSS investments,” says Kukreja.
RBI Floating Rate Savings Bonds, which are currently offering an interest rate of 8.05% per annum, can also generate regular income. By investing Rs 35 lakh in these bonds, senior citizens will get Rs 1,40,875 every six months, which is equivalent to Rs 23,479 per month. However, it is important to note that the interest rate of these bonds is not fixed and is revised twice a year.
For hassle-free monthly income with minimal risk, senior citizens can invest a lump sum of Rs 30 lakh in long-term debt funds and start a systematic withdrawal plan. Historically, these funds have given returns of 6-7% per annum, allowing senior citizens to earn Rs 16,865 monthly from this debt-oriented SWP for the next 20 years, while keeping their initial amount intact.
Finally, senior citizens can consider investing Rs 30 lakh in hybrid mutual funds such as Balanced Hybrid Mutual Fund, which has given a return of 9-11% per annum. At a 10% interest rate, senior citizens can get a regular pension of Rs 23,732 from this SWP for the next 20 years, after which they can get their deposits back.
To sum up, by investing a total of Rs 1.45 crore in the suggested instruments, the senior citizen can get a total monthly pension of Rs 1,00,201.
Moderate investors can invest more in equities while maintaining the safety net of fixed-income investments. Possible allocations could be:
According to Sridharan, for an investor with a moderate risk tolerance, a balanced portfolio consisting of both equity and fixed income investments could be an appropriate approach.
The investor can invest about Rs 10 lakh in fixed deposits, which will give him a return of 7.5% per annum, i.e. quarterly income will be Rs 18,750 or monthly income will be Rs 6,250. Apart from this, investing Rs 30 lakh in Senior Citizen Savings Scheme will give a monthly pension of Rs 20,500. Apart from this, investing Rs 35 lakh in RBI Floating Rate Saving Bond will give a monthly income of Rs 23,479.
Another Rs 35 lakh can be invested in a balanced hybrid mutual fund to initiate a Systematic Withdrawal Plan (SWP). Assuming a 10% annual return, this investment can provide a monthly income of Rs 23,732 for the next 20 years while maintaining the initial amount.
If the investor can tolerate more risk, he can consider setting up another SWP of Rs 30 lakh in large-caps. Equity Mutual FundsWith an estimated 12% annual return, this investment can generate a monthly income of Rs 28,198 for the next 20 years, with the initial amount being returned after a period of 20 years.
To sum up, with a total investment amount of Rs 1.35 crore, the investor can get a combined monthly pension of Rs 1,02,159.
Aggressive investors can make significant equity investments for higher long-term returns, while keeping some funds in safer investments. The suggested allocation could be:
An investor with a high risk tolerance can invest a significant portion of his portfolio in equities, aiming to generate superior returns over the long term, while maintaining a portion of his funds in more conservative investments. Senior citizens can allocate Rs 10 lakh to senior citizen fixed deposits, which offer a 7.5% return after tax, resulting in a monthly income of Rs 6,250.
Additionally, they can invest Rs 30 lakh in Senior Citizen Savings Scheme, which will give them a monthly pension of Rs 20,500 (Rs 61,500 per quarter).
The second option is to invest Rs 30 lakh in an equity-oriented hybrid mutual fund and start a systematic withdrawal plan (SWP). Assuming an annual return of 10%, this investment can generate a monthly pension of Rs 23,732 for the next 20 years, while keeping the initial amount safe.
Further, senior citizens can invest Rs 55 lakh in aggressive hybrid funds, large-cap mutual funds or flexi-cap mutual funds, which have historically given returns of 10% to 14%. By starting a SWP, they can receive a regular pension. Assuming a 12% annual return, this investment can provide a monthly income of Rs 51,696 for the next 20 years.
To summarize, with a total investment amount of Rs 1.25 crore, senior citizens can earn a combined monthly pension of Rs 1,02,178 by strategically allocating their funds across various investment options.
What should senior citizens keep in mind?
While investing in regular pension, senior citizens should keep in mind the LSR rule: Liquidity, Security + Stability and Returns. Liquidity gives the flexibility to withdraw money when needed, while stability ensures that the income continues for life. Security can be achieved through diversification across asset classes, and returns should be considered post-tax and inflation-adjusted. Proper nomination and succession planning is also important.
