Let's check out some tools to plan your investments for a sustained income flow after retirement
“I want to be poor!” No human has perhaps ever said so. But if that is the case, then what keeps us from planning our retirement, or rather considering investments, that generate sustained income flow? More often than not, at the early stages of investment, one major aspect new investors overlook is generating a sustained income flow. People say I want to grow rich, but how if you do not die rich? That is exactly why planning your portfolio in a way that you achieve your financial goals while investing into tools that help you generate sustained income flow is extremely vital. Here, I would like to shed light on some of the investment avenues that would help you to have a sustained income flow.
Systematic Withdrawal Plan: Lately, Systematic Withdrawal Plan or SWP has become like a buzzword among the investors. And why not, it is among the few options that offer the perk of having a regular income. If you go for an SWP, say you want a regular income of Rs 100,000 per month for 20 years after retirement, your age of retirement would be 60 years and today you are 30 years old. So, making an SIP of as low as Rs 16,000 per month can help you earn more than Rs 100,000 a month post retirement.
The best part is even after you start withdrawing monthly, you continue to earn compounding returns on the amount that’s still invested, which makes it a win-win. The only word of caution that goes with this option is, as you withdraw money, you are selling a few funds so you need to keep an eye on the funds sold to ensure that you do not eat away your capital.
Annuities: Consider an investment in this tool as if offers a regular payout option to the investor similar to a pension plan. It is one of the most certain and reliable sources of income that you can look up to. They function pretty much like mutual funds where you can choose to make a lump sum investment or go for SIPs. Again, there are several types of annuities, but broadly, the most popular types are immediate and deferred. Immediate Annuity allows you to reap the benefit of it almost immediately. Usually preferred by those on the verge of retirement, this option demands a lump sum investment. The Deferred Annuity, on the other hand, is where an individual would need to build a corpus over time, so would need to invest regularly to ensure that he or she earns regularly on the payout post-retirement.
Public Provident Fund: Next up is the Public Provident Fund, popularly known as PPF, which should be an inevitable part of your portfolio as you will continue to earn interest on the amount invested in this option. PPF enjoys E-E-E (Exemption-Exemption-Exemption) status as it comes with tax exemption at every stage be it investment or growth and even the maturity for this investment remains tax-free. Since PPF gives you pre-tax returns as there is no Income Tax applicable, the actual earnings are usually higher. Historically, PPF interest rates have fluctuated around 8 per cent, though current returns are at around 7.1 per cent. Besides, because PPF has a locking period of over 15 years, it is an effective tool to build up your capital while getting risk-free and tax-free returns. However, PPF investment has a cap; it cannot exceed Rs 1.5 lakh. Though the investment amount can depend upon your financial situation, I always recommend to try and invest the entire Rs 1.5 lakh in PPF to enjoy the benefits it offers.
Senior Citizens’ Saving Scheme: The Senior Citizens’ Saving Scheme, also called SCSS, is usually an inevitable part of the portfolio if you are looking at income after retirement or a sustained income in later years of life. While this scheme, as the name suggests, is meant for early retirees or senior citizens. The major incentivising factor about this option is the fact that it allows premature withdrawals while falling under Section 80C.
Having a contingency plan is a must as, during emergencies, the expenditures might be wildly erratic and might drain out a major chunk of your savings. A strong contingency plan provides you with a cushioning against such unforeseen circumstances, thus helping create a minimum impact on your goal-oriented plans. And there is nothing better than having a plan that incorporates the options that offer sustained income sources.
The author is the CEO of 5paisa.com.
DISCLAIMER: Views expressed are the authors' own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.