Tax Planning for Retirement

Retirement is that phase of life when you can sit back and afford to relax. The nitty-gritties of the daily routine are not there to bother you any more, the constant “earn money” thoughts do not cross your mind now, and everything seems to be a ride. Add to that the corpus of retirement funds which you have accumulated all through your working years, and life is sorted.

But before you jump on to the “just chill after retirement” bandwagon, it is important to understand that retirement is simply an end of your active working life. That in no way means you have stopped generating income. Monthly pension is one cog in the wheel of retirement funds, to begin with. Then comes the interest generated on provident fund schemes. Besides these two, there can be myriad other investments (both variable and fixed-income investments) that make money for you. So though you stopped working, you are still generating income.

And speaking of income matters, there is no way that tax can be far behind. Which is why today we have put together some tips on effective tax planning for retirement.

Read to know how you can save taxes on your retirement income and enjoy this phase of life to the fullest:

  • Stocks lead the way

    One of the most significant ways by which you can minimize the taxes on your retirement income is investment in stocks for a long term (at least a year). Present tax laws provide for preferential tax rate on long term capital gains on sale of equity shares and mutual funds. Besides, equity markets equip you with a potential for higher return as well which will enhance your retirement corpus besides taking care of the inflation and help you maintain a healthy lifestyle even post retirement. A win-win situation we say!

  • Government schemes

    Public Provident Fund, or PPF as we know it, is one of the major avenues through which people in India generate income for their retirement. The best part is that this one comes with tax exemption not only at the time of investment, but also at a later stage when the fund matures. Thus you end up saving tax and generating a reliable source of income to help you through retirement years. Another government scheme that qualifies for tax exemption under certain sections of the Income Tax Act is the Senior Citizen Savings Scheme (SCSS). Pick and choose schemes that meet your investment budgets and guarantee regular income post retirement.

  • Tax-free bonds

    For someone looking at effective tax planning for retirement, tax-free bonds can be the answer. These bonds come with a significant lock-in period (10 to 20 years) but the interest income is tax free in the hands of investor. A good source for generating retirement income whilst saving taxes- what else could one ask for!

  • Short-term investments

    For those with a post-retirement income less than the government stipulated limit for senior citizens, it is a great idea to invest in short-term avenues such as bank fixed deposits, corporate bonds and the like. Investing in fixed income investments helps you render a sense of certainty to your retirement plans as the returns are fixed for the investment tenor, unlike investments in equity shares etc.

As is generally advised, “do not put all your eggs in one basket”. This holds true even while you are considering investments for retirement income from a tax-saving perspective. Be sure that you choose products that are in line with your risk appetite and the amount of money you can invest, while taking care of external influences such as inflation. And it is equally desirable that one does not have to make any compromises on his or her lifestyle whatsoever post retirement.

Balance is the key. Figure out what works best for you and you are on your way to build a retirement corpus that will help you lead a stress free and healthy life after all those years of hard work.

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