The most important concern post retirement is the absence of a regular income. Unless you are on state pension, you will need to create your own income with your investments, in a safe and secured way. One of the options to consider is the Senior Citizen Savings Scheme.
Senior Citizen Savings Scheme was started in 2004 as a deposit scheme by the Government of India. The idea was to help senior citizens generate a guaranteed rate of return on their retirement benefits.
Who can invest in Senior Citizen Savings Scheme (SCSS)?
An individual can open an account under SCSS, given s/he
- has attained the age of 60 years and above on the date of opening of an account.
- has attained the age of 55 years or more but less than 60 years and who has retired on superannuation or otherwise on the date of opening an account.
- The retired personnel of Defence Services (excluding civilian Defence employees) irrespective of the above age limits subject to fulfilment of other specified conditions.
An NRI or HUF are not eligible for this scheme.
You can open your account with several PSU banks, ICICI bank (it is the only private bank offering this) and India Post Offices.
Deposits / Term / Withdrawals
The minimum deposit under the scheme is Rs. 1000 and the maximum is Rs. 15 lakhs. You can also open a joint account with your spouse and deposit upto Rs. 30 lakhs.
The tenure for the SCSS is 5 years after which you can take the deposit back or extend further for a period of 3 years.
The lock in is one year, after which you can close your account and withdraw the deposit but with a penalty. If you withdraw after 1 year but before 2 years, 1.5% of the deposit is charged as penalty. If you withdraw any time after 2 years, the penalty is 1%.
How much interest is paid on Senior Citizen Savings Scheme?
The interest paid on Senior Citizen Savings Scheme is announced by the government on a quarterly basis.
From Jan 1, 2019, the deposit made under SCSS shall bear interest @ 8.70% p.a. from the date of deposit payable at the end of each calendar quarter e.g. 31st March / 30th June / 30th September / 31st December. (Source) Compounding of interest is not allowed.
The interest at the time of opening the account is applicable for the entire tenure of the deposit. So, if you open your account today at 8.7% interest, the same shall be payable for the next 5 years.
Interest is credited directly to your bank account.
The interest on SCSS is also taxable as your regular interest income (much like the Bank FDs).
Remember that TDS is applicable if the interest amount exceeds Rs. 10,000 per year. You should provide the required forms for no TDS deduction.
How can you use Senior Citizen Savings Scheme in your post retirement portfolio?
Today, SCSS is one of the most rewarding option for Senior Citizens in a Government Backed Scheme.
Suppose you have Rs. 1.5 crore available with you on retirement. You need to generate Rs. 40,000 of income per month for your expenses.
You can invest Rs. 30 lakhs between you and your spouse in the Senior Citizens Savings Scheme. At the current interest rate, this can bring you Rs. 65,250 per quarter (that is, Rs. 21,750 per month). This takes care of over 50% of your current expenses.
The remaining income can be generated using various other investment options.
What should you do today?
It is a fact that interest rates are likely to come down over a period of time even on deposits such as SCSS. So, if you do plan to have an account, subject to conditions, you may want to consider opening your account now.
It is important to note that while SCSS provides you guaranteed returns, it is not your defence against inflation. Over time with rising costs, the same amount will start to feel less.
SCSS will provide the regular guaranteed income now. However, your portfolio has to get ready for future years too, to at least retain the overall purchasing power.
Are you invested in the Senior Citizen Savings Scheme? Or plan to? Do share your thoughts in the comments.