5 Investment Options: The Road to a Tax-Free Retirement

5 Investment Options: The Road to a Tax-Free Retirement

When Frank Sinatara sang “Fly me to the moon, let me play among the stars, let me see what spring is like on a, Jupiter and Mars,” he probably wasn’t thinking that soon we human beings would actually think to live on the moon. Although, that plan is still a couple of years away, you can start saving today to make it to the moon after your retirement when you will have limited financial obligations but unlimited time!
Retirement is a time to indulge in leisure and travel activities that you always dreamt of. However, monetary affairs will undoubtedly undergo a change overnight due to the loss of full-time job. Therefore, retirement planning is important to enjoy the second half of your life with pride without compromising on your living standards. Those who overlook, have much to regret later when they outlive the money of their bank account. Also, with an increase in life expectancy and living costs, retirement planning should always be taken up on a priority basis.
You’ve worked tirelessly throughout to ensure that you’ll live life on your terms after retirement. But how can you be sure that it will be the same retirement you had always envisioned? By choosing the right investment options!
The investment options available in the market help you set aside a huge portion during your working years for your long-term needs. Further, these plans also offer tax benefits which make them an apt choice to invest in the present scenario when you are already looking for investment options to save tax. Here are some investment options that not only reap good returns in the long run but also save tax under Section 80C of the Income Tax Act.
1. Unit-Linked Insurance Plans Pension Plans
The Unit-Linked Insurance Plan (ULIP) ensures that disciplined savings can be accumulated over a period of time to provide steady income post retirement. The plan offers the flexibility to make a lump-sum or regular payment during your earning years, which is then invested in funds of your choice. You can then opt to receive pension after vesting age (age at which you become eligible to get pension). Further, these are flexible products and let you decide the equity exposure as per your age, risk appetite and the number of years left for retirement. It means, if you are in the early accumulation stage and have a number of years left for retirement, you can take more risk and invest in equities. However, if you are approaching the retirement age, you can exercise switch fund options and invest more in debt funds. For instance, ICICI Pru Easy Retirement is a ULIP pension plan that builds your retirement corpus as per your risk appetite. After retirement, you can choose from the available annuity options to get regular income. Besides tax benefits on premiums paid, you also get one-third of the accumulated value on retirement as tax-free under Section 10(10A).
2. Senior Citizen’s Saving Scheme (SCSS)
It is open for people above the age of 60 years or who have taken voluntary retirement and belong to the age group of 55 to 60 years. An individual can start investing in the SCSS with a minimum amount of Rs 1000. One can open more than one SCSS account by opting for a joint account with the spouse but the limit of total investment cannot exceed the maximum investment limit, which is Rs 15 Lakh. While investments in SCSS are eligible for tax deductions under Section 80C, the interest earned is fully taxable. Also, the income is subjected to tax deductions if it exceeds Rs 10,000 in a financial year.
3. New Pension Scheme (NPS)
It is best for those who want a low-cost retirement product along with limited liquidity. It is a flexible plan that starts with as low as Rs 500 per month and provides the facility of life-cycle fund as well as diversification of the fund.
The plan offers tax benefits on investment of up to Rs 50,000 in a year under section 80CCD (1B), which is over the tax benefit of Rs 1.5 lakhs under Section 80C. Anyone can start the NPS account; however, it is mandatory for government employees and optional for private employees.

NPS Funds

4. Equity Linked Savings Scheme (ELSS)
With good returns and tax incentives, an ELSS is a useful option for salaried people looking at tax incentives and high returns. However, being an equity fund linked, they mirror the financial markets, and therefore, there is no guarantee of returns. You can start investing in ELSS with as low as Rs 500 for tenure of 3 years.
5. Public Provident Fund (PPF)
Scoring high on safety, PPF is a long-term investment that suits to investors of all profiles. The PPF account can be opened by both salaried and self-employed people, with a minimum deposit of Rs 500. Further, PPF offers dual tax benefits. The entire maturity, including the interest earned, is tax-free. Also, the deposits are exempted from wealth tax.
Planning for retirement is not tough when you are smart, ready to research and act accordingly. The mantra is to think wise and early. The more early you start planning for retirement, the more corpus you can accumulate.

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