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Are you a woman who wants to handle your own finances? In the new financial year, look at these tax options for a good retirement plan.
Consider the case of this woman who earned fairly well through her life. Her first job was a dream come true.
A five figure salary and awesome perks. An Apple gadget, meal vouchers from Starbucks and travel bills footed by the employer. An American Express privilege card found place in her wallet in two years. In five years, the bankers bent over backwards to finance 90%, of a flat purchase. It saved her big amount in taxes too.
One thing she hated was the year-end ritual of tax planning. So she went for an all in one income-cum-insurance plan. It took care of her tax-saving, insurance and built a good retirement kitty for her. She automated the annual premium payments.
As zeroes got added in her salary cheque, a bigger house with a bigger EMI followed. An insurance top plan and EMI is all she did for tax planning. Rest of the bank balance funded a good life.
As she turned 50, she reckoned if she could hang up her boots.
Spades, compost and seeds were to replace a cubicle life. But she got a rude shock: her wealth wasn’t enough to build her a kitchen garden. She had to either work hard or even invest harder for next 7-8 years before retiring. Or she could forgo that dream forever.
What would you do in her place?
Resign to what life brings you? Postpone your retirement until you have enough wealth of your own? Or hope that your kids will fund your dream financially? This tax saving season could be an opportune time to hunt for those answers and plan for retirement if you haven’t already started.
Section 80C of the Income Tax Act reduces our taxable income by upto Rs 1.5 lakh if we produce proofs that we have invested the said amount in tax eligible saving instruments like
Section 80CCC allows for deduction if the above amount is fully paid towards any annuity plan or a pension plan from an insurance company (a scheme that gives regular cash flows).
Section 80CCD (1B), gives an additional rebate of Rs 50,000 if we invest in National Pension Scheme (NPS).
Gruhini Tip: Invest Rs 1.5 lakh in above mentioned instruments, and utilise Rs 50,000 towards retirement investing.
First estimate how much home loan principal has been repaid during the year. In first 3-4 years, the principal repaid amount may not be significant as major portion of your EMI goes in interest on the loan amount.
If the principal repaid for the year is only upto Rs 50,000, then you should also consider other tax saving options like
Gruhini Tip: In first few years of a home loan, invest major portion of Rs 1.5 lakh towards
You cannot withdraw from some of these instruments before 3 years. In case there is no home loan, the full amount can be invested keeping in mind your goals.
Single women should consider long term saving options like
so that tax investing helps in meeting your long term goals.
Over and above what you save for Section 80C, Section 80D gives Rs 25,000 deduction if you paid for the health insurance premium of yourself, or family. An additional Rs 25,000 deduction is given if you pay premium for parents as well. It increases to Rs 30,000 if parents are above 60 years.
Within this limit of Rs 25,000, preventive health check-ups costs of upto Rs 5,000 are also eligible for rebate. So if you paid premium for yourself and your kids, and still Rs 25,000 limit isn’t exhausted, you can claim upto Rs 5,000 if you got a preventive health check up receipts with you.
Gruhini Tip: A mediclaim or health insurance may not cover the hospitalization or illness costs completely, but a cashless facility (insurers pay directly to the hospital) can help you meet the immediate funds need.
Things you need daily, even food, will not cost the same by the time you retire.
Think of a tentative age you would like to retire. Use some of the comprehensive online retirement calculators to get an estimate of how much you need to save for retirement, to maintain your current lifestyle. The amount you get is roughly the amount you ought to invest in pension cum tax saving instruments.
Gruhini Tip: Pension may be least of your priorities if you have just started working or getting your own income. So initially put 5% of your income for retirement fund and then increase the investment to 10-15% as your income grows.
Investing for retirement is nothing but a disciplined way of putting away your savings in a long term instrument that will generate returns enough to sustain you beyond your 50s or 60. Here are your options;-
National Pension Scheme (NPS): It’s pension scheme of the government whereby you make certain annual contributions and choose from the investment plans (only equity, only fixed income or a mix of both) to decide how it is to be invested. There is no fixed guaranteed pension.
On retirement, whatever the amount that gets accumulated, you need to buy a regular income bearing insurance product called annuity and the balance can be withdrawn in lump sum. Learn more about this scheme here.
Pension Plans of mutual funds: You will see many of these funds being launched now. These instruments will invest your money in interest bearing bonds of companies and government and a small percentage (10-20% or as specified) will go in shares. Some may also give investment options like NPS.
These products dissuade you from withdrawing money before a prescribed period: 5 years or retirement age. But unlike NPS, on retirement you are free to decide how to use the accumulated amount.
Create your own retirement annuity with a residential or commercial property: A rental income from a house or a commercial property is the best way to get good sleep when you retire. But that’s only if you
These considerations can be kept in mind while buying a second house for investment purpose as well.
Create your own retirement kitty with indirect equity investing and a fixed income investment: Just as a concoction of too many ingredients can spoil a nice drink, an avenue that promises too many things in one is too good to be true. Avoid income cum insurance and retirement plans.
Let’s say he amount you need to invest per month is Rs 10,000. Split it by putting Rs 5000 in a long term fixed deposit(auto-renewal option) or a public provident fund and 5000 in a equity linked mutual fund through a systematic investment plan (SIP). Invest in this ratio until 3-4 years before the year you plan to hang in your boots.
In your 20s, this ratio should ideally be 80% in equity and 20% in fixed deposit. In your 40s it should be 50% equity and 50% in fixed deposits. As you near retirement period, equity allocation should be stopped.
A retirement fund is what every woman needs irrespective of the money she earns or the way she lives.
Disclaimer: The information contained here is purely for education and guidance purpose and advice is based on author’s understanding about financial products. Author isn’t directly involved with selling of any kind of financial products.
Image source: chest of gold coins by Shutterstock.
Rachna Monga Koppikar aka The Great Gruhini is a finance writer who’s worked with
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