Twilight zone: Semi retirement is in

Recently at the TV interview Pallonji Mistry said that he has taken semi-retirement.  The name of Pallonji Mistry is a well known name in the corporate circles of India as he happens to be one of the very powerful shareholder in some of the top companies of India.  There may be lakhs of persons in India who have not yet retired either from service or from business but have adopted for semi-retirement. It is at this regime of semi-retirement that some important points should be taken into consideration especially if an individual is interested to achieve optimum level of tax and investment planning.

1.      Never take up hazardous and risky investment options on your agenda during the period of your semi-retirement

Remember that with your age at the point of semi-retirement never take up any activity, which is too hazardous and is strenuous to your health, which may result into health breakdown and ultimately bring negative returns on your investments. Hence, do make it a point not to venture at all in any hazardous risky and heavy time-consuming investment options. Therefore do take up those investment options which are simple, smooth and such investments do not make your life a burden.

2.      Succession planning should be on the agenda for all those persons who are in the process of semi retirement

It is also time right now to sit down and prepare your will. Preparation of the will is an attempt for smooth succession planning. The will is usually made on a plain white paper. It may be registered in the officer of the sub-registrar or it may not be registered at all. The legal impact of the will remains the same, whether it is registered or not. However, to a any hassles later on it is always better to register the will. We even recommend persons preparing the will to have a video recording of the will.

3.       Liquidity should be priority

A person who is in the semi-retirement phase must keep his action plan ready to make his debut in the arena of the retirement. From the point of view of investment planning the theme of liquidity should be on the top of the agenda. Do remember that where there is liquidity there is mobility.  Hence during semi-retirement period the investment planning should be so geared up that liquidity of the funds is maintained.

4.       It is time right now to think of fixed investment options like the rental housing

If you have a house to let out on rent, it’s time to do it now. The rental-housing concept is a favorite with people who are in semi-retirement period. The special 30% standard deduction, which is admissible in respect of rental income, acts as a big tax saver for all those persons who derive rental income. When a person is making a choice of rental housing for rental income the choice should be exercised in favor of residential rental in comparison with office rental. If a company lease is entered into in respect of your residential property the chances of getting it vacated after the expiry of the lease are very bright.

5.       Play less in the secondary stock market and play more with the mutual funds

During the period of semi-retirement you should play less in the secondary stock market and play more with the mutual funds. It is recommended that even in respect of the investment of the funds in the mutual funds care should be taken to divide the portfolio partly with monthly income plans and partly between equity exposed mutual funds. A small little portion of the total investment portfolio should also be kept in the liquid fund instead of keeping the same in bank fixed deposits. Keeping money in the liquid fund of a mutual fund will provide mobility and liquidity to the person during his semi-retirement period. However, the person who is in the semi-retirement age can continue to play with primary market investment in the shares. The investment of shares in the primary market is of fewer hassles and the chances of making a loss are very remote.

6.       Consolidate your real estate

It is also time now during the semi-retirement period to consolidate real estate and try to dispose off such real estate which you feel is not much of a requirement.

7.          Plan your taxes smartly

From the point of view of tax planning it would be better if various options available for setting up new income tax files of different family members are implemented into reality. This step will surely help in the process of tax planning and saving income tax in years to come. To start with make a gift of your funds to different family members so as to achieve optimum level of income tax planning. Do not make gift of your funds to your spouse and minor children. This is because their income would be clubbed with your income as per section 64. Do take full benefit of Income-tax exemptions available within the framework of the Income-tax Act, 1961. Similarly, if you want to achieve full tax deduction by way of tax deduction in respect of investments made within the purview of section 80C of the Income-tax Act, 1961 then looking to the age of the person who is in the age of semi-retirement right now the best option would be to invest in shares/mutual funds which are specifically demarcated for the purpose of section 80C deduction. At this age it is no good making investment in life insurance policies. However, the investment in National Savings Certificates could be considered.

For all those persons who are in the semi-retirement age one single concept, which should always be kept in mind, is that it is time now to simplify your tax and investment related activities. So enjoy your semi-retirement period with bliss, happiness and lot of tax saving with good investment results.

The author, Subhash Lakhotia, is Tax and Investment Consultant in New Delhi for the last over 35 years. (E-mail: slakhotia@satyam.net.in)