Father’s Day 2023: How to ensure the financial safety of your father in his golden days?

Retirement is a bitter truth and no doubt your father will face it someday or has already faced it. Planning retirement can be tough, especially, for the older generation who relied on fixed deposits without realizing how inflation ate into their post-tax returns. The fear that they would outlive the money saved stems from the continued devaluation of money. Armed with a little bit of financial knowledge or by seeking professional financial advice, you can help your father sort out his retirement finances this Father’s Day, which falls on June 18 this year.

Retirement plans contain a mix of both traditional and new-age plans that can help create a corpus that would not only for daily expenses but ensure that there is enough left for the retiree to enjoy or fall back on when needed. As you spend some quality with your father this day, introduce him to the various retirement plans that can help him build a corpus while setting aside enough liquid funds for the near future. Some of these include:

National Pension Scheme

The Pension Fund Regulatory and Development Authority (PFRDA) increased the maximum age for joining the National Pension System (NPS) to 70 years. This is an innovative scheme where one may stay invested for a prolonged period to ensure the accumulation of a decent corpus which can then be converted into an annuity income.

This Father’s Day, you can open an NPS account in your father’s name and contribute to the same on his behalf. This retirement option offers multiple investment options and enough flexibility in asset allocations. Apart, this scheme offers a choice of multiple Pension Fund Managers (PFMs) who manage the investments made by subscribers. Subscribers can select a PFM of their choice.

Old-school people choose investments in sync with their tax benefits, which is why NPS seems like an apt investment option that must be gifted. Contributions made to the NPS are eligible for tax benefits under Section 80CCD (1) of the Income Tax Act, 1961, subject to certain limits. Also, there are added tax benefits that are available on contributions made under Section 80CCD (2) of the Act.

On reaching retirement age, which is usually 60 in the Indian context, your dad may withdraw a portion of the accumulated corpus as a lump sum. The remaining amount must be used to purchase an annuity from an insurance company regulated by the Insurance Regulatory and Development Authority of India (IRDAI). The annuity provides a regular income during retirement.

Public Provident Fund

Being able to set aside ₹1.5 lakh every year, despite all the rising expenses and loans in hand is nothing short of a miracle. Check if your father has opened a Public Provident Fund (PPF) account in his name.

This government-sponsored scheme is a widely favoured investment option owing to its long-term nature. It allows individuals to securely and efficiently save for their future financial objectives while benefiting from tax advantages.

The minimum annual contribution to a PPF account is ₹500, while the maximum limit for a financial year is ₹1.5 lakh. Contributions can be made in a lump sum or in instalments throughout the year. You may contribute to this account on your father’s behalf depending on how much you wish to invest and your choice of mode.

The government determines the interest rate for the PPF, which undergoes periodic revisions. The interest accrued on PPF is exempt from taxes. Furthermore, contributions made to the PPF account qualify for tax benefits under Section 80C of the Income Tax Act.

Since partial withdrawals are allowed subject to certain conditions, while the entire amount can be withdrawn only after 15 years, this long-term investment can help serve your father’s financial goals or have a decently sized corpus in time. Since this option offers a combination of tax benefits, attractive interest rates, and long-term savings options, you may consider gifting one to your dad this Father’s Day.

A retirement mutual fund scheme

Mutual fund schemes for retirement are investment options explicitly created to aid individuals in saving and expanding their wealth for their retirement period. These schemes are provided by diverse mutual fund companies and are designed to meet the long-term financial requirements of individuals throughout their retirement phase.

The idea behind putting money in these schemes is to provide investors with a disciplined and systematic approach to building a retirement corpus. These funds aim to generate substantial returns over the long term by investing in a diversified portfolio of stocks, bonds, and other securities.

To achieve a balance between risk and return, retirement funds utilize a combination of asset classes. Generally, they allocate a larger portion to equity investments in the initial stages to take advantage of long-term growth opportunities. As the investor nears retirement age, the allocation gradually shifts towards a more conservative approach. The fund managers regularly adjust the asset allocation based on market conditions and the investment objective of the fund.

Apart, certain retirement funds often have specific regulations regarding withdrawals. Investors may have the option to make partial withdrawals or choose systematic withdrawal plans (SWPs) that offer regular income during their retirement years. Moreover, some schemes may provide the opportunity to purchase an annuity, which ensures a stable stream of income throughout one’s lifetime.

Similar to other mutual fund schemes, retirement funds are not without risks. The returns generated by these funds are influenced by market volatility and the performance of the underlying investments, which is why you must evaluate your dad’s risk profile before deciding to open one such investment and put your hard-earned money in it.

Senior Citizen Savings Scheme

If your dad is a senior citizen, opening a Senior Citizen Savings Scheme (SCSS) will lend him access to a regular stream of income with not only the desired safety but also tax-saving benefits. You can either open one such account in your dad’s name or help your parents to open a joint account in their names.

Those who open an SCSS account are entitled to receive interest on the principal amount deposited at a rate determined by the government. The interest payment is made on a quarterly basis, with credits being issued on the first day of April, July, October, and January, respectively.

This scheme has a standard maturity period of five years. However, individuals have the option to extend the maturity period by an additional three years by submitting an application. The request for an extension should be made during the fourth year of the scheme. Additionally, it is worth noting that individuals can open multiple SCSS accounts, allowing for the possibility of opening one account for your dad every year on Father's Day.

Life insurance retirement plans

These schemes are also known as retirement-oriented life insurance policies or retirement plans with an insurance component. They combine the benefits of life insurance coverage with long-term savings for retirement. These plans offer individuals a way to secure financial protection for their loved ones while building a retirement corpus.

Buying life insurance retirement plans helps serve dual purposes. They provide life insurance coverage to protect beneficiaries in case of the policyholder’s death, and they also accumulate savings for retirement. These plans offer the benefits of both insurance and investment in a single package.

You can pay regular premiums towards the life insurance retirement plan on your dad’s behalf. These premiums cover the cost of life insurance coverage and contribute to the investment component of the policy. The premium amount and payment frequency can be chosen based on your present financial situation and goals.

To gain a comprehensive understanding of the specific features, benefits, and tax implications of each retirement plan option in India, it is recommended to seek guidance from a financial advisor or tax professional. These professionals possess expertise in the field and can provide personalized advice based on your father's financial goals and risk tolerance. Their assistance will help you make an informed decision and select the most suitable retirement plan.

Discussing with your dad the various retirement options can help both of you learn and grow. Your knowledge of finance combined with your dad’s experience can actually pinpoint the right retirement option(s) before you decide to buy one or more of them and gift them to your dad.

This Father’s Day, take the pain of securing your dad’s finances. Gift him a lifetime of security with the necessary investment(s) in place.