• 4 MAY 2016

    Your expenses could rise in retirement!

    The notion that “my expenses will come down after retirement” may prove to be wrong. You are bound to opine that you have completed your responsibilities towards the family and there is nothing more to do other than relax and enjoy the sunset years. Well, here are a few reasons why the expense may actually rise.

    Medical treatment:
    Group health insurance: While in job, most companies provide a group health insurance policy. You do not have to pay for the same. But after retirement, all these benefits cease to exist. At that point of time, you have no option but to buy a health insurance plan.
    Higher premium on health insurance: Premium is directly proportional to age. Higher the age, more the premium will be. This is because premiums are calculated keeping in mind the probability of occurrence of the risk. The chance that a 60 year old may suffer from heart attack is much more than a 25 year old person.
    Regular medicines: In old age, the immune system starts to take a beating and contracting common illness becomes a regular feature. Many diseases like hyper tension and diabetes occur. In such cases, the patient will have to take medicines on a daily basis.

    Travel Expense:
    Free leisure time: With lots of free time in hand, an individual tends to travel a lot. The desire to visit places which he/she could not due to paucity of time regains momentum. This happens particularly immediately after retirement. If you have not travelled abroad and have had this deep desire to do so, then imagine the expenses which will be involved in air tickets, hotel booking, visa fee, shopping and other associated expenses.
    Visit your children: After some time, the free time starts to bite. Being busy at office and communicating with other colleagues is no longer there. Hence, to avoid depression, one tends to travel to their children. Spending time with grand children is a joyous moment for the grandparents.
    Socially active: Due to exigency of work, one might not find the time to attend to social obligations. However, with all the time at hand after retirement, old couples make it a point to attend all the marriages, birthday parties and funerals.
    The cost of travel: Due to old age, people want to travel via a mode which is the least strenuous. Building on the point, luxury travel comes at an additional cost.

    Household Expenses:
    Spending on refurbishing of the house: Now that a person has time, he will start to inspect the house very minutely. The home interiors at the time may make you think, ‘How the hell was I living in such conditions’? Also, a lot of surplus money from PF and gratuity is available. Hence the person may go for renovation of the house.
    Domestic help: During the later years, employing a house hold attendant becomes necessary as the body does not permit to perform the household chores. In metros, the availability of servants is low and the cost of hiring is very high.

    Taxes:
    Tax benefits are no longer available: During job, employer and employee contributions for provident fund are exempted from tax under section 80C of income tax act 1961. After retirement, pension is taxable sans benefits of 80C.
    Surplus pension can lead to change in tax bracket: There is a chance that without tax exemptions, the tax bracket may increase from 10% to 20% or from existing 20% to 30%, thus resulting in increase in tax.
    Insurance policies: Most of the life insurance policies will tend to mature. Again, this will affect the tax exemptions.
    Surplus money invested in fixed deposit will attract tax on interest: On retirement, lump sum money is received from provident fund, gratuity and maturity claim of insurance policies. The retiree will want to keep the money in an instrument which has assured return, is risk free, is easily accessible and has high liquidity. Fixed deposits are an ideal instrument for such investments. But unlike insurance and provident fund, the interest earned becomes taxable. Say a person invests Rs.20 lakhs in a 3 year term FD @ 9% rate of interest. After one year, the interest earned will be Rs.1.80 lakhs. These 1.80 lakhs will add up to the taxable income and will attract more tax. Now although interest is earned, it is still with the bank. Hence, the added tax burden will have to be borne using the pension income.

    Looking at it pragmatically, there is a strong need of financial planning after retirement so that your post-retirement years are not bogged down by restrictive finances. Plan carefully and keep a strict control on expenses as that you have the finances at hand to meet unforeseen or eventual rise in expenses.

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