How to Use a Savings Plan to Build a Fixed Monthly Income?

ByBusines Newswire

A predictable monthly income is one of the strongest signs of financial security. Salaried professionals get this comfort during their working years, but after retirement or in times of irregular income, the absence of steady inflows can create stress. A savings plan bridges this gap. It helps you save systematically during your earning years and later transforms your savings into a fixed monthly income that supports household needs.

Why You Need a Fixed Monthly Income

Expenses like groceries, electricity, medicines and school fees do not stop when your job ends. Relying on lump sum amounts often leads to poor money management. Families may overspend early, leaving little for later years. A savings plan avoids this risk by ensuring payouts at regular intervals. It creates a second salary — one that arrives month after month, regardless of whether you are working or not.

How Savings Plans Can Be Used for Monthly Income

Savings plans are not all identical. Some are designed for wealth accumulation, while others are meant to provide liquidity during the policy term. To generate monthly income, you need to choose structures that focus on payouts rather than just a maturity benefit.

  • Money-back policies: These return a part of the sum assured at fixed intervals during the policy term. If aligned properly, these payouts can be scheduled to provide monthly inflows in later years.
  • Endowment plans with income benefits: Instead of one maturity payout, some insurers allow you to opt for monthly income from the accumulated corpus.
  • Unit Linked Insurance Plans (ULIPs): After the lock-in, you can use a Systematic Withdrawal Plan (SWP) facility to convert market-linked returns into fixed withdrawals each month.
  • Annuity conversion: The maturity corpus of a savings plan can be used to buy an annuity product. This guarantees lifelong monthly payouts, similar to a pension.
  • Government-backed schemes: Options like the Senior Citizens’ Savings Scheme (SCSS) and Post Office Monthly Income Scheme (POMIS) are designed specifically for regular payouts.

Steps to Plan Your Fixed Monthly Income

  1. Calculate your needs: Start with your expected monthly expenses. Add a margin for inflation and medical costs.
  2. Decide the savings route: For younger professionals, long-term insurance savings plans or ULIPs make sense. Retirees may prefer SCSS or POMIS for immediate income.
  3. Choose the right tenure: If you want income after retirement, align your plan maturity with your retirement age. For education or housing goals, pick shorter terms.
  4. Use a tool: An investment calculator helps you understand how much premium to commit today to receive a desired monthly payout in the future.
  5. Stay consistent: Regular premium payments are the backbone of a reliable income stream.

Tax Benefits that Enhance Monthly Income

Tax efficiency improves the value of your income. Under Section 80C, premiums for savings-linked insurance plans qualify for deductions. The death benefit is fully exempt under Section 10(10D), while maturity or monthly income may also be exempt if conditions are met. SCSS interest is taxable, but it offers higher rates and quarterly payouts. A tax-efficient mix of plans ensures more money stays in your pocket.

Example of How It Works

Imagine a 40-year-old professional who wants ₹25,000 per month after age 60. She chooses a 20-year endowment savings plan. The premiums build a corpus, which she then converts into an annuity at maturity. The annuity ensures monthly payouts of ₹25,000 for life. Alongside, she invests in SCSS at retirement for additional income, ensuring her household expenses are covered fully.

This combination of savings discipline and annuity structure demonstrates how a savings plan can be converted into a predictable monthly income stream.

Mistakes to Avoid

  • Buying only for tax savings: The goal should be steady income, not just Section 80C benefits.
  • Not aligning tenure with goals: Payouts must begin when expenses arise.
  • Overcommitting premiums: An unaffordable plan may lapse, breaking your income flow.
  • Skipping comparison: Always check at least two or three insurers or government schemes before finalising.
  • Ignoring riders: Disability or critical illness riders protect your income if something unexpected happens.

Best Options for Building Monthly Income

Here are some reliable savings-linked options that can be used to create a fixed monthly income in India:

  • Insurance-based:
    • Money-back plans with fixed survival benefits.
    • Endowment plans that offer income payout options.
    • ULIPs with systematic withdrawal.
    • Maturity proceeds invested into annuity products.
  • Government-backed:
    • Senior Citizens’ Savings Scheme (quarterly payouts, high safety).
    • Post Office Monthly Income Scheme.
    • National Pension System (systematic withdrawals post-retirement).
  • Banking products:
    • Fixed deposits with monthly or quarterly interest payout.
    • 5-year tax-saving deposits that can later be rolled into income products.

Final Thoughts

A savings plan is about converting wealth into usable income. By choosing the right structure, aligning your goals with the policy tenure and using calculators to plan your contributions, you can create a second salary that supports your family every month. For many, combining insurance-linked savings with government schemes is often the most practical way to ensure financial independence. Choose what makes your future predictable, stable and secure.

Similar Posts