If you think that the pain of dealing and paying taxes will be a thing of the past when you retire, then you are mistaken. Taxes are one certainty that you have to deal with in your financial life as long as you have an income. And this holds good in retirement too.
Most of the sources from which you will draw your retirement income are taxable. This includes pension from the erstwhile employer, income from any annuity purchased, interest income earned from popular and preferred investments in retirement such as bank deposits, post office monthly income schemes and the Senior Citizens’ Savings Scheme.
A tax liability on income means that you have to draw a higher amount from your retirement corpus to set-off the tax outflow. And over time this puts you at a greater risk of the corpus running out during your lifetime.
“There are two aspects to consider when it comes to saving for retirement: inflation and taxation. Certain products might look attractive and low on risk, but these two aspects can bring down the expected outflows. Taxation can bring down your returns by 1-2%, at least,” said Steven Fernandes, a Mumbai-based financial planner.
