Where should senior citizens invest in 2020?

Published: May 26, 2020 at 11:34 am

Last Updated on February 12, 2022

Falling interest rates and “risky” mutual funds have spooked senior citizens and their self-appointed advisors – their children. As always, wrong questions like “should I invest in “7.75% RBI bonds?”, “Should I buy PM Vaya Vandana Yojana?” are doing the rounds. A look at how senior citizens should invest in 2020.

How a senior citizen should invest at any point in time depends on several factors (apart from their age and the spouse’s age) like (1) how much money do they have? (2) What kind of regular income do they get? (3) Are they dependent on their children? (4) What kind of health care needs do they have now and foresee in future (based on the present situation)? (4) What is their experience with capital market investments?

I used to be under the misconception that senior citizens, given their age and experience, would in “in general” choose wisely. That is until I read stories about them buying ULIPs (post 60) based on the advice of bank RMs; buying monthly dividend option of hybrid equity funds; chasing returns in risky debt funds; co-op and small finance bank FDs; thrift schemes and so on.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

    🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

    Eager children itching to put their newly gained “financial literacy” at work want their parents to invest in mutual funds because they are “Sahi hai” or some such thing. Now after finding out how risky they can, how risky banks can be, everyone wants the umbrella of safety. Nice!

    “where should I invest?” is a question that should never start with product names. Retirement planning is the most difficult problem in personal finance. Give a corpus and income stream less than what a retirement calculator coughs up, questions like

    “should I get constant income from it with bonds or annuities?” or

    “draw an income from it after investing in various buckets?”

    is something even “experts” would find hard to answer. The freefincal robo advisory template offers a solution to this in an automated manner.

    For the purpose of this article, we shall assume the senior citizen does not have much of a corpus to play and is looking for “safe options” (non-market linked). The safest option would be to hire a SEBI registered fee-only financial advisor. If you are a son/daughter reading this for your parents, please make them work with a financial advisor asap. Stop experimenting with your parent’s retirement corpus!

    To be honest, the “safe” options are both obvious and limited.  What you choose depends on the need.

    The senior citizen(s) need regular financial support from children in addition to their own pension. The children are financially stable. In this case, whatever little money they have can be invested in a cumulative debt instrument like the RBI 7.75% bonds.  What does this mean? The children do not need the lump sum of the parents and this money can be locked away for a few years.

    The senior citizen(s) need regular financial support from children in addition to their own pension. The children are not financially stable. The lump sum amount can be invested in fixed deposits of say SBI or post office or even senior savings scheme (which is not cumulative). In case of emergencies, this amount may need to be liquidated.

    The senior citizen(s) require regular income. Perhaps they are just about to start retired life or are looking for an additional monthly income component. the Pradhan Mantri Vaya Vandana Yojana (Modified- 2020) Scheme launching today (May 26), the senior citizen’s savings scheme (quarterly payout) or post office monthly income scheme will work well to supplement the main pension from an annuity.

    A life insurance annuity interest rate is for the life of the annuitant or their spouse. See: How Annuity Plans Work. The above three regular payout schemes will suffer from interest rate changes in future.

    Another lesser-known option is to buy long term 20, 25, 30Y gilt bonds with six-month interest payout. They can work as a life-long annuity without the need for life certificates

    While tax-free bonds are certainly an option. There are two considerations to keep in mind. Tax-free bonds will mature within the next 15 years, meaning the income will stop after that and alternative arrangements will have to be made.  Second is the yield.

    Tax-free bonds are available only at a premium. This means much higher than the face value of Rs. 1000 – about Rs. 1200-1400. This means when you buy, you lose a significant amount of future gains from coupon payouts.

    So before you buy a tax-free bond, find its yield = coupon rate divided by the current price. This yield should be higher than the post-tax yield of a taxable bond or deposit. If the difference is not much, there is nothing special about a “tax-free” bond. Also see: How to buy tax-free bonds in the secondary market

    Thus the primary clarity required is, (1) do I need income or growth (2) if I need income, do I buy a “for life” income product or is a limited-term product acceptable? (3) If I need growth, does liquidity matter or can it be locked away? Once the answers are clear, the products become obvious. Without this clarity, little point in worrying about which offers higher returns.

    There is still a place for debt funds, arbitrage funds etc but those are for senior citizens who have a large enough corpus to draw an income from it – instead of living off the interest income only. Those who are recently retired can make this quick check: When should senior citizens purchase an annuity?

    Do share this article with your friends using the buttons below.

    🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
    Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
    New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
    • Follow us on Google News.
    • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
    • Join our YouTube Community and explore more than 1000 videos!
    • Have a question? Subscribe to our newsletter with this form.
    • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

    Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

      Explore the site! Search among our 2000+ articles for information and insight!

      About The Author

      Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
      Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
      Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
      Our new book for kids: “Chinchu gets a superpower!” is now available!
      Both boy and girl version covers of Chinchu gets a superpower
      Both boy and girl version covers of Chinchu gets a superpower.
      Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
      Feedback from a young reader after reading Chinchu gets a Superpower (small version)
      Feedback from a young reader after reading Chinchu gets a Superpower!
      Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
      Buy the book: Chinchu gets a superpower for your child!
      How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
      Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
      We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
      About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
      Connect with us on social media
      Our publications

      You Can Be Rich Too with Goal-Based Investing

      You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
      Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

      Your Ultimate Guide to Travel

      Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)