If you plan to retire at 60 and supposing you survive till say 80 years, you need to accumulate a corpus of around 3.45 crores.
Retirement needs a lot of planning related to taxes, investment and returns. Here are few things which will help you plan your retirement income and taxes on it.
Calculate your corpus
Imagine, you are 30 years old at present. You need an amount of Rs 25,000 every month for personal expenses. If the rate of inflation is assumed to be around 6% and you plan to retire at the age of 60, then you would need the inflation-adjusted amount of around Rs 1.44 lakh every month for personal expenditure. If you plan to retire at 60 and supposing you survive till say 80 years, you need to accumulate a corpus of around 3.45 crores.
If you are at present 30 years old, then you have around 30 years more to accumulate retirement corpus. So, if you choose to invest in an avenue which gives you a return of around 12% for 30 years, then your monthly SIP would be equal to Rs 9,860 to accumulate a retirement corpus of around Rs 3.45 crore.
Higher exemption limit
Income tax basic exemption limit for the senior citizens (above 60 years of age) is Rs 3 lakh. For those above 80 years, the basic exemption limit is Rs 5 lakh. You don’t have to worry about paying advance tax on your retirement income even if your tax liability exceeds Rs 10,000. Senior citizens, having income from sources other than from business or profession, are not required to pay advance taxes as per the I-T Act.
Section 80C: Invest and save taxes
If your taxable income exceeds Rs 3 lakh, you will be liable to pay income taxes. Though there are many tax saving avenues and rebates available for your rescue under the Income Tax act. You can avail a deduction up to Rs 1.5 lakh on the premium paid on your life insurance plans, contribution to PPF, investment in tax saving mutual funds, NSC contribution, 5-year FDs etc. It is advised to exhaust the limit of 80C and avail the tax benefits.
You can compare different investment options on the basis of interest rates, returns, taxability, etc. The interest rates on FDs for senior citizens is higher as compared to other individuals. So, it may be better to keep your money invested in them.
Interest on savings bank account
Being a senior citizen, you can avail a deduction up to Rs 50,000 under section 80TTB of I-T Tax act from the FY 2018-19 onwards. The deduction can be claimed on the interest income from bank deposits, post office deposits and deposits held with co-operative societies, provided that the interest income is the part of your taxable income.
Take medical insurance
Health insurance not only gives you a health cover at the time of medical emergencies but also provides you tax benefit under section 80D of the I-T Act. Being a senior citizen, you can claim up to Rs 50,000 of the health insurance premium paid in a year.
Maintain liquidity for an emergency
Most of your investments would have a specified timeline. Unplanned redemptions to address emergency needs may lead to loss of returns. Having an emergency fund is essential to fulfil monetary requirements during contingencies.
You may park 3-6 months worth of expenses in a liquid fund to take care of that. Liquid funds generate higher returns than a savings bank account. Moreover, these don’t have an exit load to make sure that your money is accessible when you need it the most.
-The writer is founder & CEO ClearTax