Five ways to generate regular income after retirement

Life expectancy continues to rise globally, including in India, thanks to the progress in medical science and a general improvement in living conditions. According to the World Bank World Development Indicator, a newly born Indian can expect to live for around 68 years, a gain of 5 years from a life expectancy of 63 years in the year 2000. Most professionals in urban areas are however expected to live till the late 70s and early 80s. In comparison, the official age of retirement in India is 60.

In other words, a salaried or working professional in India must plan for 20 years of post-retirement income or cash flow. It is a non-issue for government employees who enjoy lifelong pensions post-retirement. Government employees or public sector workers with pension benefits are however a small minority in the country.

Most salaried workers, self-employed and business people need to devise their own post-retirement income or cash flow schemes. This requires a lifelong saving strategy, careful planning and consideration of various scenarios such as inflation and our expectations about post-retirement lifestyle choices.

However, this is not rocket science. Retirement planning for regular income is just another piece of the larger savings and investment puzzle that all of us need to solve. 

Thankfully, the growth and expansion of the financial and capital markets have greatly widened the income-generating options for potential retirees. 

Here are five ways to generate regular income post-retirement in India.

1. Pension Plans

Most salaried individuals with a regular permanent job have social security benefits in the form of an employee provident fund (EPF). Under this scheme around a quarter of your basic salary is deposited into an EPFO account that earns a fixed interest hike a bank FD. A small part of the EPF contribution is invested in a pension plan. However, the expected monthly pension from this plan may not be sufficient for many. Understand your pension benefits under the default option and if it is inadequate, you can top it up to increase your benefits. 

Self-employed and business persons can subscribe to new pension plans or invest in plans offered by life insurance companies and mutual funds as well. 

The market is now full of pension plans to suit all budgets and considerations.

2. Senior Citizen Savings Scheme (SCSS)

SCSS is a government-backed savings scheme specifically designed for senior citizens. Under the scheme, senior citizens resident in India can invest a lump sum in the scheme, individually or jointly, and get access to regular income along with tax benefits. They can open an account in a Post Office branch or an authorised bank. 

The scheme currently offers an interest rate of 8.2 percent per annum. The scheme has a tenure of 5 years and an individual can invest a maximum of Rs 30 lakh in the scheme.

The interest income enjoys income tax benefits under Section 80C up to Rs.1.5 lakh per annum.

3. Annuities

A retiree can also purchase annuity plans from insurance companies. Under annuities plans insurance companies provide regular payments or income to subscribers for a specified period or for life in exchange for a lump sum investment. The potential annuity income or the yield on lump-sum investment in the scheme is typically lower than the prevailing interest in long-term bank FDs but it comes with the surety of a life-long income like a pension. The insurance company takes on the life risk. This is a good option for risk-averse and passive savers.

Also Read: Five top-performing retirement mutual funds

4. Dividend Stocks

Another way to generate a steady and growing income post-retirement is to invest in stocks of blue-chips dividend-paying companies. Large blue-chip companies have been paying equity dividends without a break for decades now and a timely investment in them can become a source of income for investors. 

Dividend payouts by companies grow with the rise in their earnings which makes it inflation-proof. 

However, investors should remember two things. Firstly, most companies pay a dividend once a year and secondly, dividend payment is at the discretion of the company subject to economic and market conditions.

5. Fixed Deposits (FDs)

Investment in fixed deposits with banks or post offices is a good way to create a large corpus and then earn a monthly or quarterly income post-retirement through interest income on this corpus. There is no upper limit on investment in a bank FD. You can also opt for a monthly income plan from the post office where you earn a fixed income every month for a specified investment and the principal amount is returned after five years. 

Also Read: Best fixed deposit (FD) options for investors right now

However, you should know that interest on fixed deposits is taxable at the applicable rate of income tax. Secondly, if the interest on FD is less than that of annual inflation in the economy, then this income stream will turn inadequate in a few years.

It's essential to assess your financial goals, risk tolerance, and liquidity needs before choosing any income-generating method. Diversifying your income sources can also help mitigate risk and ensure financial stability post-retirement. Consult a certified and experienced financial advisor before making a large investment in any of the retirement plans. They can help you devise a personalised and tailor-made solution based on your specific circumstances and goals. 

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

Also Read: Retirement planning: Why NPS is better than mutual funds and ULIPs 

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