Planning to Retire This Year? Here is How You Should Prepare for the Next Tax Season

It is crucial to invest your retirement corpus diligently. Before you make your investment decisions, evaluating and analyzing different options is beneficial. You do not want to speculate your retirement corpus. You may prefer earning slightly lower returns for the security of your funds.

Your primary objective is to generate fixed income through your limited savings. The first step is to collect all your funds from instruments, such as gratuity, Public Provident Fund (PPF), savings bank accounts, equities, fixed deposits (FDs), and insurance.

The next step is to estimate your monthly expenses post-retirement. No matter how much you reduce your expenses, it will never be nil. If you do not invest your retirement corpus and use it to meet your monthly expenses, the funds will soon be exhausted. Investing in the best tax-saving options will ensure your money lasts for a longer period.

Here are five available options:

Savings bank account
This is one of the safest investment options. However, the returns on such accounts are lower than the rate of inflation. Therefore, you will need a large investment corpus if you want to park all your money in these accounts.

Fixed deposits
If you want to know how to save income tax, you may consider investing in tax-saving FDs. These deposits come with a five-year lock-in period and deliver slightly higher returns than savings bank accounts.

Post Office Monthly Income Schemes (POMIS)
Such schemes offer regular income, which is a huge advantage when you are retired. However, one major limitation is that the interest is credited to the Post Office Savings Account (POSA) that has a check facility but no online or ATM service. Additionally, you may invest a maximum amount of INR 9 lakh in a joint account with your spouse.

Senior Citizen Savings Scheme (SCSS)
This is also a recommended option for you to invest after you retire. You may open more than one SCSS account in different banks. These accounts have a five-year lock-in period but deliver high returns when compared to all other monthly income plans (MIPs). However, the Tax Deducted at Source (TDS) is applicable on the interest.

Mutual funds

You may invest in tax-saving mutual funds like Equity-Linked Saving Schemes (ELSS). Such plans invest a majority of its corpus in equities and are an EEE (exempt, exempt, exempt) investment instrument. This means that not only your principal but also the dividends and maturity proceeds are tax-free. However, ELSS has a three-year lock-in period during which you are unable to withdraw the principal.

In addition to this tax-saving mutual fund, you may consider a mutual fund MIP (MF-MIP).A good MF-MIP is able to generate higher returns because of the equity exposure. However, a Dividend Distribution Tax (DDT) is levied on the dividends paid by the MFMIPs, which may slightly reduce your actual returns.

Another option is to invest in equity-based balanced mutual funds. You may wonder if this is the right investment option because equity exposure is risky. However, it is important to include some investments that are beneficial in wealth creation over the long-term. Therefore, investing some portion of your retirement corpus in such balanced mutual funds is advisable.

When you look for the best tax-saving options, always remember an important factor. You must always choose investments that deliver at least minimum returns that enable you to sustain your lifestyle even after your retirement. You must aim to reduce your risks while ensuring sufficient returns to provide you financial independence and stability.

It is crucial that you lock your retirement corpus. However, this does not mean that you leave it in your savings bank account, but rather invest in tax-efficient investment products. If you do not invest, your funds will deplete over the years and you may find yourself in financial difficulties.