Let us look at some of the key aspects that have aided NRI, OCI, PIO real estate investments in India. Non-Resident Indians (NRIs) who want to participate in the Indian real estate market should be aware of the rules that govern the purchase, sale, and rental income generated by a property.
Retirement Planning Investment Strategies With Real Estate In India
Real estate is a solid retirement planning investment. How? It helps you generate rental income.
Your working life, with all of its ups and downs, might be coming to an end. The provident fund built over the years appears to be in fine shape. And, if you are eligible for a pension, it is another assuring idea for your post-retirement years. Then there are the savings you make during your working years for retirement. But, looking at the total funds, can you rest, expecting that your days of meticulous financial preparation are behind you? You most definitely cannot. Your financial woes have not subsided. Therefore, intensive retirement planning is critical. And how do you do that? Through some of the best post retirement investment options available out there.
On the surface, retirement planning appears to have remained relatively unchanged throughout the years. You work, save, and then retire. While the mechanics remain the same, savers like you and I face several problems that past generations did not. Life expectancy, to begin with, is increasing, which means you will need your money to survive longer — maybe into your 90s. Bond rates are also significantly lower than previously, implying that you cannot buy a few fixed-income products and get a double-digit return. Then there is the public health issue caused by the coronavirus. It gets exacerbated by the fact that more employers are shifting away from defined benefit pensions — which guarantee you a specific amount of money in your golden years — and toward defined contribution plans, which are more vulnerable to market fluctuations.
So, how can you get the retirement you have always desired? Through retirement planning only. After all, retirees want to do all the things they could not do when working. Exotic holidays, marathon running, novel writing, and spending more time with friends and family are just a few of the options.
Retirement also obviously does not mean the end of your tax problems from your active earning days. So, if you do not invest your money correctly, you will still pay taxes. Therefore, you must plan and invest precisely not just to make your money generate higher-than-inflation returns but also to minimize the amount of tax you must pay.
Firstly, what is retirement planning?
Retirement planning is the process of preparing your money for the time after you retire or stop working. Retirement planning may begin as soon as you receive your first paycheck. However, inflation is known to diminish the purchasing power of your money. Therefore, you must invest in financial products that have the potential to outperform inflation over time. As a result, it assists you in obtaining the funds necessary to live a comfortable retirement lifestyle. Retirement planning also involves estimating retirement needs and calculating your retirement time horizon. It also consists of rating your risk tolerance and determining the tax efficiency of your assets.
So, why is retirement planning important?
The retirement period gets frequently referred to as the “golden years.” A retirement plan helps you guarantee everything you anticipated it to be. Retirement planning ensures financial security throughout one’s life, regardless of the job. Here is a list of reasons why retirement planning is vital and why it will be one of the wisest decisions you will ever make.
- Age: The United Nations estimates Indians over the age of 60 gets expected to rise from 8% to over 20% by 2050. However, once you reach retirement age, you do not have to bury your ideas and ambitions.
- Medical inflation: As you become older, your healthcare costs will only rise. Furthermore, the expense of upkeep is rising as medical inflation quietly raises your expenditures. However, contingency funds from your retirement planning will come in handy.
- Lack of social security: Sweden are well renowned for their complex social security systems, while India is relatively gloomy and inadequate. If you run out of money after retirement, there is no federally sponsored plan to fall back on. Therefore, comprehensive retirement planning might be of great assistance throughout your retirement years.
- Tax break: Retirement planning might also help you save money on taxes. PPF and NSC investments, for example, qualify for tax exemption under Section 80C of the Income Tax Act. These are long-term investments that are appropriate for retirement. There are many investment choices for retirement planning that qualifies for tax benefits.
So, how can you strike a budget for your retirement planning?
Do you not have any money left over at the end of the month for savings or investments for retirement? Well, haven’t we all been there? However, if you follow the 30-30-30-10 savings strategy, you can manage and strike a balance between expenses, savings, and investments for retirement.
So, what is this 30-30-30-10 strategy? The 30-30-30-10 saving plan assists you in allocating particular amounts of your income to various expenditure areas. After the allocation, you can spend it on those categories plus retirement as long as you keep under the spending constraints.
For example, if a person has a yearly salary of Rs. 10 lac, they may apply the 30-30-30-10 savings approach as follows:
Category of spending
Allocation of income in percentages
Allocation of funds
Essential goods & services
Investing and Savings
Leisure activities & Entertainment
Now, what does real estate offer for your retirement investment plan?
Real estate is frequently a good retirement planning investment strategy. Real estate is a high-yielding asset class. It is also commonly used as a hedge against inflation. Real estate investing also has two major selling points: capital appreciation and rental income.
- REITs: Real estate property investing has two major selling points: these assets constantly increase in value and provide rental income. Unfortunately, there appear to be as many disadvantages as advantages to being a landlord, which is why it is not for everyone. REITs are an easy method to invest in real estate. They have a specific tax position that compels them to distribute at least 90% of their earnings as dividends. Investors in REITs would get rental income, profits from sold residences, or payments on mortgage-backed securities loans. REITs offer capital gains, but the regular dividend income is the main attraction. They avoid corporate taxation by allocating at least 90% of earnings to shareholders.
- Commercial Real Estate: The most enticing investment approach is commercial real estate. Regardless of market volatility, commercial real estate investing generates a consistent source of rental income flow and asset appreciation. Once purchased, commercial real estate may be a hugely profitable source of revenue for the foreseeable future. Owning a CRE property and leasing it to established firms to receive rental income is one of the methods to build a guaranteed income stream. Because rents rise every year, this type of income also helps you remain ahead of inflation.
- Residential Real Estate: When most individuals think of real estate investment, they envision purchasing a house and renting it out. The challenge is to constantly have renters who pay enough to cover whatever mortgage you may have on the property, as well as insurance, taxes, and upkeep. The most crucial factors to consider are the location of the property and market rental prices. Another advantage of investing in rental property is the cash flow from rental income through monthly rent. Rental properties can supplement your retirement portfolio by providing an additional source of income. Purchasing a home or two may give you enough money to allow you to retire sooner.
- CRE Crowdfunding: Crowdfunding is the pooling of cash by a group of investors into a real estate project. The concept is that many people contribute a tiny amount to a project. Crowdfunding is quickly becoming a popular and low-cost alternative to invest in real estate. Assume you wish to invest in residential rentals and believe the perfect property is a ten-unit structure, but you do not have the money to make that type of investment. Crowdfunding allows you to join in that sort of endeavor without having to invest a large sum or deal with the bother of owning and managing the property yourself. Initially, investors profit from rental income. CRE investment was previously exclusively open to experienced investors. However, these platforms have recently expanded to allow anybody to engage. As a result, crowdfunding has decreased the barrier to investment in commercial real estate.
- CRE Fractional Ownership: A new kind of property ownership – fractional ownership of property – enables people to get ownership of a piece of property they have been eyeing for some time more simply and economically. Fractional ownership offers investment safety, strong returns, and consistent monthly rental income—the three hallmarks of a solid retirement investment. According to industry data, fractional assets have an internal rate of return (IRR) of 13 to 20%, which is greater than the IRR of most retirement plans. In comparison, schemes such as PMVVY and government securities and bonds provide just 7-8% returns, which is much lower than the profits from commercial real estate. Lease agreements for commercial buildings are such that tenants get locked in for 5-7 years, with a 15% rental income increase every three years. As a result, fractional ownership is an excellent choice for retirees who want a consistent rental income. According to industry experts, fractional ownership is a low-risk, high-return investment in any retirement plan. Seniors can invest up to 25% of their resources in fractional ownership to generate consistent rental income and capital gains.
Retirement planning should be an unavoidable component of your financial strategy. The future may be unclear, but being prepared can help. You may also diversify your retirement portfolio by investing in mutual funds, fixed-income securities, and other government-backed products. Begin as soon as possible so that your latter years can be peaceful.
Assetmonk is a prominent WealthTech Platform in India, offering real estate investment alternatives in Bangalore, Chennai, and Hyderabad and IRRs ranging from 14 to 21 percent. To view the website, click on the link above.
Retirement Investment Strategies In India FAQ'S:
The three types of retirement investment plans are:
- Employer-Sponsored Pension Plans
- Insurance-based pension plans
- Government-Sponsored Programs
The three biggest pitfalls to retirement planning are:
- Saving gets postponed.
- Making early withdrawals from a retirement account
- Choosing an inconvenient moment to pay taxes on your savings.