From PPF to NPS, low-risk investment options for people nearing retirement

For people nearing retirement, there can be a lot of ways to manage existing wealth and monthly surplus.

What’s the first worry that comes in people’s mind when thinking about retirement? No Income. Given the pandemic, a large number of people got to see first hand, how things can be when there is a sudden drop or stop in income with no proper savings. Even though starting early is the main key – not having a proper saving plan and ending up with insufficient retirement funds can ruin all your hard work of creating a retirement corpus.

Once you are set to plan for your retirement, the next question you are faced with is – how much will be enough for you? There is no one fixed amount to decide this. The corpus of retirement varies from individual to individual and depends on the stage of life you are in. It also depends on your income and its growth, expenses and growth, lifestyle, assets in hand, future liabilities, number of dependants, future goals, etc. According to experts, even though it is complex calculations, with proper assumptions and focusing on the goal, it is possible to achieve the desired reserve.

Arpit Arora, Passive Income Coach, AskTheWiseGuy, says, “For people nearing retirement, there can be a lot of ways to manage existing wealth and monthly surplus. It should be done in such a way that it can ensure a regular stream of monthly income for them, eliminating the worry of no or low income.”

Here are some low-risk investment options for people nearing retirement:

1. Senior Citizen Savings Scheme

SCSS is a government initiative to give income quarterly to people who have either crossed the 60 age mark or have taken voluntary retirement at 55. Currently, the Senior Citizen Savings Scheme offers 7.4 per cent interest rate paid quarterly. It comes with a tenure of 5 years which can be extended to another 3 years on maturity.

2. Government Bonds | Quasi Bonds

Arora of AskTheWiseGuy says, “Given the turbulent economic climate, debt investing has become riskier than ever. However, investing in government-backed bonds like RBI bonds, Quasi Bonds like REC, IRFC, PFC, etc. are some instruments available for any conservative investor, and not just for people nearing retirement.” The gross interest rate (before taxes) on these bonds is currently around 7 per cent approximately. Additionally, you can also avail the same by investing through the Bharat Bond series of ETF which consists of government-backed companies and sovereign bonds only.

3. National Pension Scheme

One of the easiest ways to create annuity especially for people nearing retirement is adding money in NPS. NPS offers the choice to further diversify investments in Equity, Government, or Corporate Debt. Additionally, NPS allows for an additional tax benefit to investing another Rs 50,000 on top of your existing 80C limit of Rs 1.5 lakh.

4. Public and Employee Provident Fund

PPF is one of the popular choices of many people nearing retirement, especially because it comes with guaranteed returns backed up by the government. Moreover, experts suggest, one can also consider EPF which allows for a higher rate of Interest 8.55 per cent as compared to 7.1 per cent of PPF. An additional feature of EPF is that the employer of the investor also makes an equal monthly contribution as the employee doubling the capital invested for the individual.

Look out for

While planning your retirement corpus, avoid making the mistake of assuming a single rate of return on the entire corpus. Experts suggest it is better to break down the corpus into separate portions for different time periods. Arora says, “Although volatility and risk is the last thing a person nearing retirement is looking forward to, he/she should not put all their money in only conservative debt instruments. Minor diversification into Equity ETFs as well as alternative investments like REITs and InvITs should be considered to give their hard-earned money an overall growth.”