Securing retirement income in low-interest rates era

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With interest rates at historic lows, senior citizens are wondering how to generate retirement income. Despite low rates, there’s no need for retirees to recklessly chase yields in high-risk asset classes. Here are a few investment options that offer a better return than bank FDs.

SENIOR CITIZENS’ SAVINGS SCHEME (SCSS) 

Interest Rate: 7.4% pa

Lock In: 5-Year

Interest Payout: Quarterly

One can invest a maximum of Rs 15 lakh in SCSS in multiples of Rs 1,000. Interest in this scheme is payable each quarter so it can meet the requirement of regular income. SCSS account matures in five years after which one can extend it once for three years. 

Despite a big reduction in the interest rates of small savings schemes, SCSS is still offering a rate of 7.4% for the  January – March quarter, much higher than any other fixed-return scheme available for senior citizens. The interest rate for this scheme is notified by the government. 

PRADHAN MANTRI VAYA VANDANA YOJANA (PMVVY) 

Interest Rate: 7.4% pa

Lock-In: 10 years

Interest Payout: Monthly/Quarterly/Biannually/Annually

The pension scheme has a policy term of 10 years and the pensioner can choose monthly, quarterly, half-yearly, or yearly mode of pension. The scheme provides an assured rate of return of 7.40% in the monthly interest payment mode. If you invest in this pension scheme in the financial year, the 7.40% return will be locked-in for the entire duration of 10 years.

Any individual who is 60 or above can avail of the benefits of the Pradhan Mantri Vaya Vandana Yojana (PMVVY) scheme. The maximum allowed investment in this scheme is Rs 15 lakh. This pension scheme is marketed by Life Insurance Corporation of India.

RBI SAVINGS BONDS

Interest Rate: 7.15% pa

Lock-In: 7 years

Interest Payout: Biannually

These floating-rate bonds are issued only in electronic form by the RBI at 7.15% per annum (0.35% above prevailing NSC rate). The interest rate on these bonds is reset in every six months. Individuals and Hindu Undivided Families (HUF) are eligible to invest in these bonds. NRIs are not allowed to invest in these bonds.

There is no maximum limit for investment in the bonds. The minimum investment starts from Rs 1,000 and in multiples of Rs 1,000, thereof. And, The bonds shall be repayable on the expiration of seven years from the date of issue. Premature redemption shall be allowed for specified categories of senior citizens.

POST OFFICE MONTHLY INCOME SCHEME (POMIS)

Interest Rate: 6.6%

Lock-In: 5 years

Interest Payout: Monthly

POMIS currently offers a 6.60% interest. While the minimum required investment in this scheme is Rs 1,000, the maximum allowed investment is Rs 4.5 lakh for a single account and Rs 9 lakh for a joint account. 

To open a POMIS account, you need to open a savings account with the same post office branch where you opened the POMIS account so that the monthly interest can be credited directly to the savings account and you can withdraw from it every month.

Apart from these, senior citizens can also look at FDs of Equitas Small Finance Bank, AU Small Finance Bank, RBL Bank, DCB Bank, IndusInd Bank, IDFC First Bank, DCB Bank that offer interest rate between 7.5% to 6.75% for a tenure of one to three years. While these seem to be much more lucrative & flexible option but the credit risk associated with them is much higher when compared to products like SCSS, PMVVY, RBI Saving Bonds, POMIS.