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Any plan for retirement must feature regular return on your investments and health coverage in case of emergencies. Most people end up investing in low return assets with deposits @3.5% to 8% only. This doesn’t suffice to cover the loss of value due to rising inflation over the years. One of the ways to ensure a tax free retirement life is buying a house.
Plan for Retirement – Buy a House: How it Works
Buying a house through a home loan with a repayment scheme, which spans 15 to 20 years, is a good option to plan for a tax free life in your retired days. Regular EMIs can be paid. This acts as disciplined investment. The appreciation in the property’s value mitigates the inflation effect. Within a few years of retirement, the EMI and the rental income becomes equal. In other words, EMIs are paid partly through rental in the initial years and as years go by, the entire EMI value is paid from rental income. The cost of the home loan after taking the income tax benefit on interest and principal is very attractive, i.e. 6%.
Buying a House to Plan Child’s Education
If you buy a house, it can be of great help when the time comes to plan your child’s education. Buying a house makes available a property, which is accepted as security to get education loan. You can borrow against the mortgage of the house after retirement. Since you will be in your high income years when it is time for your children to pursue higher studies, claiming deduction for interest on education loan acts as a good tax saving tool. Plus, you are able to support your child in pursuing high quality education, without disturbing your retirement corpus. Let your child undertake the responsibility of paying out the remaining EMIs when he/she starts earning and has no liability. This also trains the child in disciplined saving.
In case of a short term requirement, like the marriage of your child, one can opt for top up loans or loan against property. Buying a house promises rental income which is a more secure method of retirement planning, specifically to pay for monthly expenses. This strategy offers higher investment security than in equity oriented funds, but the returns are low i.e. 2-4% approx in residential property and 6 to 8% in commercial property. Rental income up to 90,000/- p. m. for a couple is tax free if you take the benefit of deductions.
