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Business Four low-risk investment options for people nearing retirement

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Retirees and senior citizens need to be aware of positive investment options and ways of generating a stable income to maintain their lifestyles without exposing their assets to a lot of risks. Photo: Aniruddha Chowdhury/Mint

3 min read

. Updated: 01 Oct 2020, 07:46 AM IST

Edited By Avneet Kaur

For people to enjoy the same lifestyle as they did before their retirement, it is crucial to plan their finances wiselyConsider building a portfolio which ensures them a regular and positive flow of income

By Arpit Arora

After years of hard work and hustling, everyone deserves to have a laid back and fruitful retirement period. For many people, the retirement period is the time to sit back, relax and spend time with their families. For others, it is an opportunity to start doing things they always wanted to, like learning a new skill, travelling to new places, or picking up a new hobby. In either case, financial woes are the last thing someone wants during their retirement period. The mere thought of having insufficient funds at the age of retirement is enough to strike fear and anxiety in people’s minds. The premise of this fear is the thought of having no active income, resulting in a negative income, i.e., the depletion of their savings.
For people to enjoy the same lifestyle as they did before their retirement, it is crucial to plan their finances wisely. Retirees and senior citizens need to be aware of positive investment options and ways of generating a stable income to maintain their lifestyles without exposing their assets to a lot of risks. In times like these, it can prove to be invaluable to have sources of passive income, as it would allow people to generate revenue from their existing wealth pool or corpus. People should consider building a portfolio which ensures them a regular and positive flow of income. Here are a few types of low-risk investment options that offer long-term stability, for people approaching retirement:
Senior Citizen Savings Scheme
While this is an excellent investment option, many people tend to overlook this scheme. The Senior Citizen Savings Scheme or SCSS is a government initiative to provide a quarterly income to people who have either crossed the 60-year age mark or have taken voluntary retirement at 55. Currently, at 7.4% interest rate (paid quarterly), the scheme comes with a five-year period which is extendable to another three years on maturity.
Government Bonds | Quasi Bonds
Considering the current economic climate, debt investing has become riskier than ever. However, government-backed bonds such as RBI bonds, Quasi bonds (REC, IRFC, PFC, etc.) are great low-risk investment options for any conservative investor, and not just people nearing retirement. On average, the gross interest rates (before taxes) on the same are currently around 6.5%-7%. Another way to avail the same is investing through Bharat Bond series of ETF which consists of government-backed companies and sovereign bonds only.
National Pension Scheme
One of the easiest ways to create annuity for people nearing retirement is adding money in the National Pension Scheme or NPS. Investing in NPS provides investors with the choice to further diversify investments in Equity, Government or Corporate Debt. An interesting taxation aspect about NPS is that it allows for an additional tax benefit to investing another ₹50,000 on top of the existing 80C limit of ₹1,50,000.
Public & Employee Provident Fund
Public Provident Fund or PPF is the preferred choice for many people nearing retirement as it comes with guaranteed returns – backed up by the government. However, one can also consider the Employees’ Provident Fund or EPF, which allows for a higher rate of interest at 8.15% when compared to the 7.1% interest rate of PPF. Another significant advantage of choosing EPF is that it also requires the employers to make an equal monthly contribution as the employee, hence, doubling the capital invested for the individual.
Caution
Understandably, senior citizens and people nearing retirement are most likely to be conservative investors. They would look for stability and would prefer not to take a lot of risks. However, it is crucial to understand that there is no such thing as a “risk-free” investment. Even the safest investment options would have some risks associated with them. Hence, one should always make well-informed decisions when it comes to investing and should not allocate all their funds to conservative debt only. One should always consider minor diversification into Equity ETFs as well as alternative investments like REITs & InvITs to give their hard-earned money an overall stable growth.
(Arpit Arora is passive income coach and founder of AskTheWiseGuy. Views as expressed by the author.)

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