People near their retirement period are mostly concerned about their future income source and thus they want to know how to make passive income post their active income from a job, business or profession stops. Some part of this elderly population has already planned their finances for the retirement period but most of them have either not planned it or have a very vague plan which could be a problem (in case they overestimate the potential of covering expenses by their pension income or underestimate the extra expenses coming along with old-age). Retirement should comprise of anything but money-worries. Having less or no money should not haunt one’s thought of retirement. The very premise of this fear is the fact that there would be no active income in the retirement period and thus there will be negative income i.e. the savings would be decreasing substantially with each month passing.
This set of population should have their source of Passive Income put well into place to take care of them financially. Now, nobody wants to have a passive income source which would require a lot of effort or time, and people in their retirement period would be the last people wishing that. Retirement is supposed to be the period where one does not have to work and thus people approaching retirement should only focus on one kind of passive income, and that is the portfolio income where they do not have to work and their existing Wealth Pool or corpus is helping them make money out of it. They should have a portfolio which ensures them a regular positive income. Here are a few ways of low-risk investment for people approaching retirement :
1. Senior Citizen Savings Scheme
This option is overlooked by many, but it is actually a very interesting way to invest. 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 at 7.4% interest rate (paid quarterly), it comes with a 5 year period which can be extended to another 3 years on maturity.
2. Government Bonds | Quasi Bonds
Owing to what the current financial weather is, it has become very risky to invest in debt funds. However, investing in government backed bonds like RBI bonds, Quasi Bonds like REC, IRFC, PFC, etc. are some great instruments available for any conservative investor (those who do not want to lose their capital at any cost, low risk takers), not just to people nearing retirement. The gross interest rate (before taxes) on the same are currently around 7% (approx.). Another way to avail the same is investing through Bond of ETFs which consists of government backed companies and sovereign bonds only.
3. National Pension Scheme
One of the easiest ways to create annuity for people nearing retirement is adding money in NPS which offers 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 invest another Rs50,000 on top of your existing 80C limit of Rs1,50,000. This is more beneficial if you are a central government employee.
4. Public & Employee Provident Fund
PPF is one of the most preferred options of many people nearing retirement as it comes with guaranteed returns backed up by the government. However one can also consider EPF which allows for a higher rate of Interest 8.55% Vs 7.1% of PPF. One totally amazing feature of EPF is that the employer also makes an equal monthly contribution as the employee doubling the capital invested for the individual.
A word of caution
How to make Passive Income when you are near Retirement is rather a simpler process as shared above, however, a portfolio is supposed to be diverse in nature and not just reliant on what is shared above. So, even though the person nearing retirement does not want to take any risk, it is not something that can be totally eliminated. There is risk in the so-called “safe” investments too. Therefore, not all of the corpus should be allocated to conservative debt only. Minor diversification into Equity ETFs as well as alternative investments like REITs & InvITs should be considered to give their hard-earned money an overall growth.
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