Developing a “Tax-Smart” Retirement Income Strategy

Smart Tax Free Retirement

Smart Tax Free Retirement

“Retirement is a time to experience a fulfilling life derived from many enjoyable and rewarding activities.” -Ernie J. Zelinski.

Retirement is an age where everyone saves to enjoy full-fledged fun. But all that you assume does not always fall in place. This age bracket in life is complicated because you do not have an active source of income. It makes managing expenses a task along with planning savings. There could be several ways of saving in life, one of which include a tax saving plan.

Thinking of saving for retirement, you should look for tax saving and planning so that you save your net-outgo in the name of taxes. When in your peak years of making money, you must start planning for a tax-smart retirement income strategy.

Talking of retirement income the first thing that you must note is why should you make tax smart retirement income?

  • Why is “Tax-Smart” Retirement Income Strategy Important?

Retirement income is important because that is the point in life when you are left with limited resources. And even if the resources of income are unlimited, the income generation resources are less. But at this point of time, you would need money because one you are above 60 the age which pushes you towards diseases. Second, your children must fall in the age bracket where they need money for higher education or for marriage.

The requirement of money does not reduce but income does. This is why you need a tax-smart retirement income strategy so that you save more.

If you have understood the reason for having a tax-smart retirement strategy, let us first understand the calculation of retirement taxes.

  • Tax Liabilities of Retirement

Income tax deductions applicable for senior citizen who fall between the age of 60 to 80 years is:

Income Tax SlabsTax Rate
Up to Rs.3 lakhsNil
Above Rs.3 lakhs-Rs.5 lakhs5% of the total income that is more than Rs.3 lakhs +4%cess
Above Rs.5 lakhs-Rs.10 lakhs20% of the total income that is more than Rs.5 lakhs +Rs.10,500+4%cess
Above Rs.10 lakhs30% of the total income that is more than Rs.10 lakhs+Rs.1,10,000+4% cess
  • Income Tax Slabs for Individuals Above 80 Years (Super Senior Citizens)

Income Tax SlabsTax Rate
Up to Rs.5 lakhsNil
Above Rs.5 lakhs-Rs.10 lakhs20% of the total income that is more than Rs.5 lakhs+4% cess
Above Rs.10 lakhs30% of the total income that is more than Rs.10 lakhs+Rs.1,00,000 +4%cess

After understanding the tax liabilities after you retire, you must explore the ways to save tax when you retire.

  • Developing a Tax-Smart Strategy for Retirement

Tax planning for retirement is not a task that can be pushed to the point unknown. So next, you read are the tax-saving strategies for the future.

  1. Buy a life insurance policy: The traditional way to save tax is by buying a life insurance policy. You can buy a term plan to create financial safety for your family. The investment for a term plan is affordable, and the life cover you get is high. Under a life insurance policy, the tax deductions can be claimed under Section 80C of the income tax act. You can also think of buying pension plans and savings insurance for retirement. It helps you save money for your future goals and, at the same time, gives you tax benefits.
  2. Pay off your debts before you retire: Try to settle and pay off your debts. High-interest debts like loans, car loans, and credit card dues will not offer you tax benefits. Instead, the EMIs of these loans will reduce your savings. This is why you must settle all the outstanding loans before you retire. When your loans are cleared, you can probably live on a low tax slab of income.
  3. Buy health insurance policy: Saving taxes is also associated with investing money for benefit. Buying a health insurance policy will help you recover your cost of medical treatment in hospitals. The hospitalization can be for illness or accident. The insurance policy also reimburses your pre and post-hospitalization expenses. The policy will benefit you with income tax deductions under Section 80D of the Income Tax Act, 1961.
  4. Make investments: To get the maximum benefit as specified in the tax laws, you can make the right amount of assets at the right time. For retirement, you must invest in products that offer tax-free maturity. You can invest in savings bank accounts to get deductions up to Rs.50,000 on interest earned under Section 80 TTB. Other than this, you can claim tax rebates under Section 80C and 80CCD after making an investment in Public Provident Funds( PPF) and National Pension System (NPS). Those who look for tax benefits and returns after making a long-term investment should invest in ULIPs. Other than claiming the tax benefit under Section 80C, the maturity benefits can be filed for tax exemption under section 10(10D).

Common Mistakes to Avoid While Building a Tax-Smart Retirement Income Strategy

These are the common mistakes you should avoid while building a tax-smart retirement income strategy:

  • Make early withdrawals from the pension plan because that is your saving for life after retirement. Also, if you withdraw early, it increases your tax liability.
  • If you think it is too early to start your retirement, you are mistaken. Start as early as possible.
  • Not buying a tax saving investment plan after considering the future requirements. Make a note of the dependents in the family and expenses for each person, including you. After this, you must buy a tax saving investment plan for retirement.


Retirement is the time when you have a limited way to earn. But even without a regular salary, you can earn from capital gains, rents, and interests from investments. Income made through all these sources is also taxable. Your pension is also taxable, but the amount of it depends on your age and annual income. When the rules are standard for all and you cannot escape from your tax liabilities, you should plan to save taxes. If you are unaware of the trends and tax-saving strategies, discuss them with your tax professional. You can also read “How to prepare for a happy independent retirement” here.

About Aditi Singh 351 Articles
Aditi Singh is an independent content creator and money finance advisor for 5 years. She is recently added with Investment Pedia. Internet users are always welcome to put comments on her contributions.

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