Retirement & Tax Planning

Retirement & Tax Planning

Welcome back!

Retirement – During this stage of life, maintaining the money is more important rather than making it. Well, you don’t really have much options left for making money anyways. You now have a very limited source of income and sometimes it becomes difficult to manage both ends meet. This is a very restrictive stage, there are limits to what one can control like Inflation, Medical expenses; but you can minimize tax liability!

Retirement is end of service/job but it is not an end for tax liability, therefore managing your taxes post retirement is necessary. A good financial plan with tax efficient options can certainly help bring down the tax liability. Remember, Retirement is not “no source of income”.

So, what all goes as sources of income during Retirement:

  • Pension
  • Rental Income (House Property)
  • Salary (Part-time jobs)
  • Interest & Dividend
  • Capital Gains

The major chunk of expenses goes in inflation & medical expenses during Retirement.  Another factor is Tax. However, you can control this factor by Investing in right products. Your Retirement Funds are Provident fund, Gratuity and Savings / Investments. The corpus is large and investing this money in well diversified portfolio can minimize tax liability. Let’s see what the available options for investments are:


No doubt Equity is the option to beat inflation and to earn returns at higher side. But allocation to equity in portfolio at this stage mainly depends on your risk profile & how strong your primary source of income is. Ideally 20-30% of Portfolio can be invested in equity during Retirement. Long Term Capital gains on Equity are non-taxable but Short Term Capital Gains are taxed at 15%. Short-term losses (made within a year of the purchase) from stocks can be set-off against other short/long term capital gains.

Mutual Funds:

If you are a risk averse and not much comfortable with direct Equity investment, Mutual Funds can help you serve the purpose. Investing in Capital markets via Mutual Funds delivers decent returns. Long Term gains on mutual funds are non-taxable but Short Term gains are. But the rates are low.

Mutual Funds MIP:

Mutual Funds Monthly Income Plan is the safe option for medium term investment. It gives you a regular payment (Monthly/Quarterly/Semi-annually) through its investments. Dividends received in MIP’s are tax free for investors. Although it does not guarantee the returns every month, Mutual fund MIP’s has delivered higher income than post office MIS. But there’s a caveat – Dividend paid in MIP’s is out of income and not from invested amount. Investors should choose MIP’s according to their income needs.

Post office MIS:

This is a favorite option for most of the investors who expect a regular income during retirement. If you are a risk averse investor who wants monthly regular risk free income, this option is for you. Remember, the returns on PO MIS is low as compared to Mutual Fund MIP’s as all its investment is in debt instruments. One of the major drawback about PO MIS is that its interest is taxable as per the tax slabs of individual.

Annuity Schemes of Insurance:

Annuity schemes by Insurance companies is also available to park some money and get regular income. But annuities have some limitation and a bit complex product to understand. There are different types of annuities available as per the needs. Choose annuity which suits your income needs, risk ability and only after you understand the product. Getting an expert help before investing is always recommended.

Bank FD’s:

This is still one of most preferred source of regular income in India. Many senior citizens first preference is to park the retirement corpus is Bank FD’s. It is the safest and trusted source of income. But interest received on FD’s is taxable as per the applicable tax slabs of the individual. Liquidity is the major issue with FD’s.

Senior Citizen Saving Scheme:

This is the latest addition for senior citizens which can offer higher interest rate and gives you a tax benefit i.e. it is eligible for deduction under section 80 C of income tax act. It’s a 5 year deposit scheme which gives interest on quarterly basis. This scheme can be opened with post offices or designated banks.

The interesting thing from tax point of view is – this is one time benefit with 5 year lock-in. The same can be achieved with some other instruments too. The interest received is fully taxable and tax is deducted as source (TDS) if the total amount of interest exceeds INR 5000 a year. In case it’s non-taxable you have to provide Form 15 G or 15 H, so that tax is not deducted at source.

Keep in mind before investing in any of the above products – Do your homework, Invest where your annual payment or maturity amount is tax-free!

Happy Investing!! J


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