Financial Planning for Widows

POSTED BY Bob Terreins ON April 23, 2013 3:23 pm COMMENTS (16)

Hi,

I am asking this question on behalf of a relative (my aunt), her husband recently expired.  She is going to get approx. 25 lakhs from his insurance and various investments and wishes to invest it properly in virtually risk free propositions such that she can get a monthly return(income in a way). We are currently thinking along the lines of FDs or Post Office schemes from where she can get monthly income to manage her household. Can anyone suggest some options along the line where she can get a constant monthly income on her investment ??

Also what about the taxes that she will have to pay on the interest accrued via TDS, will the normal tax exemptions apply or are there any special terms for widows ?? I am just looking for info….i am searching online for all this but since this is the place i turn to for all financial info….i thought i would ask you all. Thanks in advance….

16 replies on this article “Financial Planning for Widows”

  1. Dear Bob, typo in the above, here it goes the correct one.

    the actual investments can be tweaked as per personal comfort & requirement.

    Thanks

    Ashal

  2. Dear Bob, the actual investments can be tewaked as per personal compfrt & requirement.

    thanks

    Ashal

  3. Bob Terreins says:

    Thanks ashal,

    That was quite specific….thanks, needed that….I will talk to her about this..
    Also, Instead of two lakh as liquid money, i was thinking of something like, say 5L in an FD with Sweep facility, that would be useful for liquidity and will earn better too

  4. Dear Bob, Please do not opt for POMIS. It’s better to invest in long term bank FDs as interest rate is higher there. Even bank FDs are now offering mly or qtly interest payout. Out of 25L Rs. I w’d ask her to invest 3L Rs. in Quantum Long Term Eq. Fund growth option & do not touch it for next 5-7 years at least. Keep 2L Rs. as liquid cash for emergency purpose. For remaining 20L Rs. invest in 10Y FDs with mly or qtly interest payout option. Please check with which banks the lady in question is banking as of now & select the bank which is offering highest interest rate for 10Y duration. Please open multiple FDs of 1L Rs. each. This is to save on penalty & reinvestment of FD at lower rate if the FDs are redeemed prematurely due to any emergency or requirement.

    The interest for 20L Rs. ‘ll be less than 2L Rs. hence she can comfortably file form 15G to save TDs liability. Ask her to purchase health cover also to cover self & kids. Once she is in a job, ask her to purchase term cover for self. In her case a WILL is the most important thing to assign the responsibilities of kids & finance after her demise.

    Thanks

    Ashal

  5. Bob Terreins says:

    25L is not so big an amount to sustain her in the future so she will have to go through some part time job…..she did say that…..we just want to make sure that her existing corpus is invested in an almost low risk and the utmost maximum profit(i know you can not have both)….
    The current plan is to get a MIS with the Post Office for joint (so max 9L)
    PPFs in both her and her childrens name….maybe some term deposits with higher interest rates, like IDBI (9%)

  6. Dear Bob, apart from this corpus, does she inten to do some part time or full time job? if not thinking, ask her to think for it. the reason is – the corpus ‘ll not sustain all the future expenses.

    Please clarify it from her.

    thanks

    Ashal

  7. Bob Terreins says:

    Dear FFC and muthu….thank you for your suggestions…..
    first of all, yes she does have two kids (10 and 14, i think)….she needs to save up for their future too, i know
    for tax saving, we are thinking of investing in PPF but then she won’t have liquidity for that money….
    I am not sure on her monthly expenses but i think most of her corpus will be required for meeting day to day expenses….i will update when i get to know from her

  8. Muthu Krishnan V says:

    The lady is on the younger side (around 40y of age). She will need to survive on the corpus for the next 35 years or so. for that she will have to live well within her income and also keep increasing her corpus to help with inflation. For that she should consider avenues which help in saving tax and relatively risk free.

    1. Agreed. Safety cannot be at the cost of liquidity. Nothing can be advised without knowing present expenses. If most of the corpus is reqd for meeting present day to day expenses then there is no point.

      The most practical scenario is to supplement income by working. In today’s expenses even with a decently growing portfolio it is not possible for a single person to ‘retire’ with 25 L. Especially if he/she has a good 25 or so years to go.

  9. Muthu Krishnan V says:

    for 25L,if she invest some amount in tax saving instruments say PPF or 5 year tax saver FDs, she would probably not need to pay tax and also will add to her corpus.

    1. That entirely depends on monthly income needed.

      btw interest from tax saver FDs is fully taxable.

      Locking it in a instrument for 15 years doesn’t help either. growth is good but so is liquidity in such cases

  10. Muthu Krishnan V says:

    does she have any kids? if she does, it changes the equation.

  11. Bob Terreins says:

    Thanks FFC,

    She should be around 38 – 40……her inlaws are there but i dont think she is going to depend on them financially….so no…..the interest will be the only source……we are thinking of PO’s MIS scheme which gives 8.4%…..also looking into various FD options

    1. Choose FDs with highest interest. She will probably fall in the 10% bracket. That is inevitable.
      If the banks deduct TDs then she need not pay additional tax. Make sure she has enough mediclaim. Ask her to increase the coverage as much as possible so that it will be good for future and also for tax deductions.

      To remain financially independent she has to keep her expenses in check and remain healthy. If she cannot afford the mediclaim premium it would be great if the family pools their resources and gifts her this.

      It would be best for her to take up some sort of employment to enhance income and keep busy and active.

      1. Bob Terreins says:

        Thank you FFC for the suggestion about mediclaim…..we had missed that….and ya, the tax thing is inevitable, i know.

  12. I don’t think there are any special tax exemptions for widows. Even family pension received by them is taxable.
    Normal tax laws apply,

    What is her age? Does she anyone to depend on financially?
    Is interest from this 25L going to be only source of income?

    if this is going to be her only source of income and if she is not yet 60 investing 25L in either FD or PO schemes (choose highest interest) earning about 8% will give about 16500.

    If her expenses are below this then she can afford to invest some portion of the 25L in FDs for compounding (without interest payout)

    In any case she will have to carefully manage her expenses and keep it as small as possible.

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