Is It Wise To Solely Depend On Rental Income For Retirement in 2022?

Do many people assume that living off passive income, such as rental income from investment properties, is a pipe dream, but is this true? Ditching the 9-to-5 in favor of paying the bills with rental income provides financial independence, and self-made property millionaires online may make building a highly profitable property portfolio look deceptively simple. But will rental income be enough for your post-retirement needs?

Investing in rental real estate is not only a practical way to generate passive income for retirement, but it may also offer a consistent source of income that can be passed down as an inheritance if scaled appropriately. However, for many people, living off passive rental income is a pipe dream. It will take years of hard effort before you can ultimately quit your job and begin paying all of your costs with your passive income alternatives. The precise amount needed to live off passive income cannot be estimated. However, an estimate based on your lifestyle, financial situation, and location may get computed. If you live in an affordable region and are debt-free, you may live off your passive income, which will be less but adequate to cover your costs. It gets advised that you diversify your assets across several passive income choices, such as crowdfunding, stock, and so on, to improve your passive income savings. You may also invest in rental homes in other areas to reap the benefits of those markets.

Also, read: 7 Tips to keep rental income consistent year-round!

So, what is rental income? 

Any money you get for the use or possession of the property is rental income. Rental revenue for all of your properties must get reported. Aside from conventional rent payments, there are additional sums. These may constitute rental income and must get recorded on your tax return.

Rental income has long gotten regarded as one of the most beneficial kinds of passive income. Buying a house and then renting it out for a living get you rental income. However, that is not sufficient enough to fund your post-retirement needs. This, it is critical to have an alternate income source other than rental income from real estate properties for several reasons.

Read Residential Vs. Commercial Properties: The Rental Income battle.

Why should you have an alternate income other than rental income?

Alternative income provides a sense of financial independence that everyone requires. Dependence on a single source is always risky; an alternate source is always advantageous in the long term and will eventually lead to you working less.

Read How Much Is The Average Rental Income in Top Indian Metropolitan Cities.

Here are a few examples of why everyone should keep a backup.

• Risk Reduction: Life is fraught with peril. Pandemics, such as the Coronavirus, recessions can put us in uncomfortable positions. Having a consistent passive income stream might assist in mitigating risks such as economic slowdowns or layoffs. With the help of passive income, you can at least live a less risky life amid all the uncertainty.
• Increasing the Cost of Living: If anything shoots higher than rockets, it is the annual expense of living. Even if the prices of daily essentials rise regularly, the average person’s income will not. As a result, having a backup source of income will assist you in sustaining inflation.
• Income Sources Diversification: Never rely on a single source of income; this will only lead to emotional stress and a financial disaster. Paying all of your bills with a single income may be dangerous for anyone. Maintain a diverse range of revenue streams to aid in the development of a solid financial portfolio.
• Personal Goal Achievement: Alternate source income is an excellent strategy to accomplish your financial support objectives. Having a secondary source of income will allow you to reach your goals more quickly and efficiently.
• Retirement Security: The primary concern of anyone approaching retirement is financial security. Having a second source of income can assist you in creating a robust corpus for a pleasant after-retirement life.

So, which are the best investments for retirement income?

You must invest in these alternative investment options apart from waiting for rental income from real estate properties to meet your post-retirement need.

• Fixed Deposits and Recurring Deposits: Fixed deposits (FD) and recurring deposits (RD) are two of the most frequent forms of retirement investing. Banks also provide a greater interest rate on FDs and RDs for retirees. Interest income up to Rs 50,000 for older persons throughout a fiscal year is tax-free under Section 80TTB of the IT Act. You might also think about investing in the Post Office Monthly Income Scheme (POMIS), which provides a monthly income. Although you can get tax breaks on investments up to Rs.1.5 lakh in tax-saver FDs with a five-year maturity period.
• Senior Citizen Savings Scheme (SCSS): SCSS is a fantastic investment choice for older individuals seeking long-term savings plans that provide security and additional rewards. The scheme is available at post offices and recognized banks around the country. This plan not only offers a greater rate of interest than conventional savings and fixed deposit bank accounts, but it also provides tax benefits of up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act, 1961.
• Mutual Funds: Investing in mutual funds is by far the finest long-term investment choice you can make. Begin investing in mutual funds to reap the benefits of both inflation-beating gains and tax savings. You can invest in an ELSS, a tax-saving mutual fund that qualifies for a Section 80C tax deduction of up to Rs 1.5 lakh each year. ClearTax provides a diverse range of mutual fund options to meet a variety of demands. Invest in top-performing mutual funds hand-picked by our experts from the comfort of your own home and earn inflation-beating returns.
• National Pension System: Individuals between 18 and 65 can apply for the National Pension Scheme. Senior folks can also prolong their tenure until 70 years of age. Taxpayers are allowed for deductions of up to Rs 1.50 lakh per year on NPS investments under Section 80C. Individuals are also entitled to extra tax advantages of up to Rs 50,000 per year under Section 80CCD. The NPS investment can get directed towards equity, corporate, or government securities, depending on the individual’s preference under the active option. You can, however, select the auto option, which allocates assets based on your age.
• Investment in Dividends: Dividend investing is one of the most consistent and reliable sources with significant returns. Dividend investing entails purchasing stock in a well-established company that pays dividends. To demonstrate their dedication to their shareholders, these corporations send out dividends at regular periods. Dividend profits obtained over a lengthy period will assist you in building a solid financial portfolio. Dividend income follows the compound gain strategy, in which earnings grow exponentially over time.

Earning more money for retirement from a different source other than rental will significantly improve your life. Your additional funds can assist mitigate the risk of unexpected costs and uncertainties. There are several essential advantages for developing a secondary source of income, such as reducing the financial risk of relying just on one source of income. Even if it isn’t doable in a month or so, the small amount of extra money you make each month might help you build up your savings in the long term. 

Assetmonk is a wealth-tech platform for rental estate properties, both residential and commercial assets in Hyderabad, Chennai, and Bangalore. Our aim is to make commercial, high tickets sized assets accessible and affordable to everyone through fractional ownership. Commercial properties come with higher returns compared to other traditional assets and leverage technology to bring you credible assets after thorough due diligence with all the information and guidance you would need.