Your income is now at the highest level of your entire career. Debt repayment and retirement planning are two most important financial goals in this stage of life. The risk tolerance of the investor in this stage of life is moderate to low. Here are some tax-planning ideas for the 50 – 60 age group:-
- If you have a home loan principal outstanding, you should try to prepay it part or full. You can claim 80C deduction for home loan principal payment.
- If you are paying home loan EMIs, you will get deduction for the interest paid under Section 24.
- Since your salary is now at the highest level of your entire career, your EPF contribution will be a substantial part of your 80C tax saving
- You should continue to claim 80C deduction towards your children’s school tuition fees.
- With home loan principal payment, EPF, children’s tuition fees and your life insurance premiums, you may not have to make any tax saving investments under 80C. But if you have to make tax saving investments under 80C, make retirement planning the only investment objective. Tax saving mutual funds (ELSS), National Pension Scheme (NPS) and Public Provident Fund (PPF) are again preferred investment choices. Since your risk tolerance is moderate to low in this stage of life, you should make sure your asset allocation is aligned with your risk tolerance.
- Children’s higher education is an important goal for many parents. As such you should start saving and investing for your child’s future on a long term basis from a young age (please read our article, Investing for the future of your children). If unfortunately, you have not been able to save and accumulate enough for your child’s higher education by your fifties, you should not prioritize funding your child’s expensive higher education over your retirement planning. You should avail of educational loans for your child’s higher education. Once your children complete their higher education and start their careers, they can pay off the educational loan. You can claim deduction on the interest paid on your child’s education loan under Section 80E of the Income Tax Act. There is no upper limit and the entire amount of interest paid in the year is eligible for deduction.
- If you still do not have health insurance cover, apart from the group health insurance plan of your employer, now is the time to get your own Mediclaim. Getting Mediclaim after your retirement is difficult. As discussed in our previous article, Mediclaim premiums are eligible for deduction from taxable under Section 80D of the Income Tax Act