NEW DELHI: Generating a monthly pension of Rs 1 lakh after retirement is a common concern for senior citizens. To achieve this goal, careful planning and consideration of various factors such as inflation, risk appetite, returns, taxation, and liquidity are essential.
According to experts, a corpus of approximately Rs 1.2 crore to Rs 1.5 crore is typically required to generate a monthly pension of Rs 1 lakh, assuming an expected return rate of 8-10%.
Economic Times quoted Soumya Sarkar, co-founder, of Wealth Redefine, saying that, “To achieve a monthly pension of Rs 1 lakh, senior citizens typically need an investment of approximately Rs 1.2 crore to Rs 1.5 crore. This estimate is based on an expected return rate of 8-10%.”
Investment options for seniors: Balancing risk and returns
The investment choices for senior citizens are determined by their risk tolerance. Conservative investors typically prefer debt instruments, including fixed deposits, Post 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 higher returns.
On the other hand, senior citizens with higher risk tolerance and a desire for better returns can consider equity-oriented mutual funds. Anand K Rathi, co-founder of MIRA Money told ET, “A balanced investment approach involving both debt (like fixed deposits or bonds, which are safer but offer lower returns) and equity (like stocks or mutual funds, which are riskier but offer higher returns) is advisable in such cases.” This balanced approach allows for a combination of stability and growth potential in the investment portfolio.
For conservative investors, a 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. The 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 up to 7.75% in private sector banks and beyond 9.5% in small finance banks for select tenures. By spreading the FD corpus among different banks and investing in various capacities, senior citizens can enjoy a quarterly payout of Rs 46,875, equivalent to a monthly income of Rs 15,625, while ensuring higher safety through the Rs 5 lakh DICGC cover on each FD.
Another 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 fetch 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 investment,” says Kukreja.
RBI Floating Rate Savings Bonds, 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 would receive Rs 1,40,875 every six months, 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 a hassle-free monthly income with minimal risk, senior citizens can invest a lumpsum amount of Rs 30 lakh in long-duration debt funds and start a systematic withdrawal plan. Historically, these funds have delivered 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 corpus intact.
Lastly, senior citizens can consider investing another Rs 30 lakh in hybrid mutual funds, such as balanced hybrid mutual funds, which have delivered returns of 9-11% per annum. At a 10% interest rate, senior citizens can receive a regular pension of Rs 23,732 from this SWP for the next 20 years, after which they can get their corpus back.
In summary, by investing a total of Rs 1.45 crore in the suggested instruments, senior citizens can generate a total monthly pension of Rs 1,00,201.
Moderate investors may take more exposure to equities while maintaining a safety net of fixed-income investments. A possible allocation could be:
For an investor with a moderate risk tolerance, a balanced portfolio consisting of both equities and fixed-income investments can be a suitable approach, according to Sridharan.
The investor can allocate approximately Rs 10 lakh to fixed deposits, which would yield a return of 7.5% per annum, translating to a quarterly income of Rs 18,750 or a monthly income of Rs 6,250. Additionally, investing Rs 30 lakh in the Senior Citizen Savings Scheme would provide a monthly pension of Rs 20,500. Furthermore, investing Rs 35 lakh in the RBI Floating Rate Saving Bond would generate a monthly income of Rs 23,479.
Another Rs 35 lakh could be invested in balanced hybrid mutual funds to initiate a Systematic Withdrawal Plan (SWP). Assuming a 10% annual return, this investment could provide a monthly income of Rs 23,732 for the next 20 years while preserving the initial corpus.
If the investor has a higher risk tolerance, they could consider setting up another SWP of Rs 30 lakh in large-cap equity mutual funds. With an assumed 12% annual return, this investment could generate a monthly income of Rs 28,198 for the next 20 years, with the initial corpus being returned after the 20-year period.
In summary, with a total investment amount of Rs 1.35 crore, the investor could receive a combined monthly pension of Rs 1,02,159.
Aggressive investors may have significant equity exposure for higher long-term returns while keeping some funds in safer investments. A suggested allocation could be:
An investor with a higher risk tolerance may allocate a significant portion of their portfolio to equities, aiming for superior returns over the long term while maintaining a portion of their funds in more conservative investments. The senior citizen can allocate Rs 10 lakh to senior citizen fixed deposits, which provide a 7.5% post-tax return, resulting in a monthly income of Rs 6,250.
Additionally, they can invest Rs 30 lakh in the Senior Citizen Savings Scheme, yielding a monthly pension of Rs 20,500 (Rs 61,500 per quarter).
Another option is to invest Rs 30 lakh in equity-oriented hybrid mutual funds and initiate 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 preserving the initial corpus.
Furthermore, the senior citizen can allocate Rs 55 lakh to aggressive hybrid funds, large-cap mutual funds, or flexi-cap mutual funds, which have historically delivered returns ranging from 10% to 14%. By starting an 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.
In summary, with a total investment amount of Rs 1.25 crore, the senior citizen can generate a combined monthly pension of Rs 1,02,178 by strategically allocating their funds across various investment options.
What senior citizens should keep in mind?
When investing in regular pensions, senior citizens should keep in mind the LSR rule: liquidity, safety + stability, and returns. Liquidity allows flexibility to withdraw money when needed, while stability ensures that the income lasts a lifetime. Safety can be achieved through diversification across asset classes, and returns should be considered post-tax and inflation-adjusted. Proper nomination and succession planning are also crucial.
According to experts, a corpus of approximately Rs 1.2 crore to Rs 1.5 crore is typically required to generate a monthly pension of Rs 1 lakh, assuming an expected return rate of 8-10%.
Economic Times quoted Soumya Sarkar, co-founder, of Wealth Redefine, saying that, “To achieve a monthly pension of Rs 1 lakh, senior citizens typically need an investment of approximately Rs 1.2 crore to Rs 1.5 crore. This estimate is based on an expected return rate of 8-10%.”
Investment options for seniors: Balancing risk and returns
The investment choices for senior citizens are determined by their risk tolerance. Conservative investors typically prefer debt instruments, including fixed deposits, Post 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 higher returns.
On the other hand, senior citizens with higher risk tolerance and a desire for better returns can consider equity-oriented mutual funds. Anand K Rathi, co-founder of MIRA Money told ET, “A balanced investment approach involving both debt (like fixed deposits or bonds, which are safer but offer lower returns) and equity (like stocks or mutual funds, which are riskier but offer higher returns) is advisable in such cases.” This balanced approach allows for a combination of stability and growth potential in the investment portfolio.
For conservative investors, a 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. The 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 up to 7.75% in private sector banks and beyond 9.5% in small finance banks for select tenures. By spreading the FD corpus among different banks and investing in various capacities, senior citizens can enjoy a quarterly payout of Rs 46,875, equivalent to a monthly income of Rs 15,625, while ensuring higher safety through the Rs 5 lakh DICGC cover on each FD.
Another 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 fetch 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 investment,” says Kukreja.
RBI Floating Rate Savings Bonds, 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 would receive Rs 1,40,875 every six months, 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 a hassle-free monthly income with minimal risk, senior citizens can invest a lumpsum amount of Rs 30 lakh in long-duration debt funds and start a systematic withdrawal plan. Historically, these funds have delivered 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 corpus intact.
Lastly, senior citizens can consider investing another Rs 30 lakh in hybrid mutual funds, such as balanced hybrid mutual funds, which have delivered returns of 9-11% per annum. At a 10% interest rate, senior citizens can receive a regular pension of Rs 23,732 from this SWP for the next 20 years, after which they can get their corpus back.
In summary, by investing a total of Rs 1.45 crore in the suggested instruments, senior citizens can generate a total monthly pension of Rs 1,00,201.
Moderate investors may take more exposure to equities while maintaining a safety net of fixed-income investments. A possible allocation could be:
For an investor with a moderate risk tolerance, a balanced portfolio consisting of both equities and fixed-income investments can be a suitable approach, according to Sridharan.
The investor can allocate approximately Rs 10 lakh to fixed deposits, which would yield a return of 7.5% per annum, translating to a quarterly income of Rs 18,750 or a monthly income of Rs 6,250. Additionally, investing Rs 30 lakh in the Senior Citizen Savings Scheme would provide a monthly pension of Rs 20,500. Furthermore, investing Rs 35 lakh in the RBI Floating Rate Saving Bond would generate a monthly income of Rs 23,479.
Another Rs 35 lakh could be invested in balanced hybrid mutual funds to initiate a Systematic Withdrawal Plan (SWP). Assuming a 10% annual return, this investment could provide a monthly income of Rs 23,732 for the next 20 years while preserving the initial corpus.
If the investor has a higher risk tolerance, they could consider setting up another SWP of Rs 30 lakh in large-cap equity mutual funds. With an assumed 12% annual return, this investment could generate a monthly income of Rs 28,198 for the next 20 years, with the initial corpus being returned after the 20-year period.
In summary, with a total investment amount of Rs 1.35 crore, the investor could receive a combined monthly pension of Rs 1,02,159.
Aggressive investors may have significant equity exposure for higher long-term returns while keeping some funds in safer investments. A suggested allocation could be:
An investor with a higher risk tolerance may allocate a significant portion of their portfolio to equities, aiming for superior returns over the long term while maintaining a portion of their funds in more conservative investments. The senior citizen can allocate Rs 10 lakh to senior citizen fixed deposits, which provide a 7.5% post-tax return, resulting in a monthly income of Rs 6,250.
Additionally, they can invest Rs 30 lakh in the Senior Citizen Savings Scheme, yielding a monthly pension of Rs 20,500 (Rs 61,500 per quarter).
Another option is to invest Rs 30 lakh in equity-oriented hybrid mutual funds and initiate 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 preserving the initial corpus.
Furthermore, the senior citizen can allocate Rs 55 lakh to aggressive hybrid funds, large-cap mutual funds, or flexi-cap mutual funds, which have historically delivered returns ranging from 10% to 14%. By starting an 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.
In summary, with a total investment amount of Rs 1.25 crore, the senior citizen can generate a combined monthly pension of Rs 1,02,178 by strategically allocating their funds across various investment options.
What senior citizens should keep in mind?
When investing in regular pensions, senior citizens should keep in mind the LSR rule: liquidity, safety + stability, and returns. Liquidity allows flexibility to withdraw money when needed, while stability ensures that the income lasts a lifetime. Safety can be achieved through diversification across asset classes, and returns should be considered post-tax and inflation-adjusted. Proper nomination and succession planning are also crucial.