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

"I am extremely content with my rental income and don't believe I need an extra source of income for retirement," said no one ever. Most people believe that the money they make from their employment or rental properties is insufficient. The truth is that regardless of how much we make, we want to earn more. Even if it's only to take an additional vacation, invest for the future, or pay off debt. That is why, in today's world, it is crucial to establish more than rental income for retirement by taking advantage of a variety of readily available options.

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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. Thus, 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.
  • Buy a Term Insurance and Health Insurance: Securing our life with insurance cover is a must. Being prepared for the worst-case scenario is critical to preventing any fatal calamities. A health insurance policy will protect you from any major health problems that necessitate surgery or hospitalization. Furthermore, everybody should have term insurance to protect their loved ones’ lives in the event of an untimely demise.
  • Set up an emergency fund: If the pandemic has taught us something, then it is to never take our life and money for granted. Setting up an emergency fund is the need of the hour. Life is truly unpredictable, and no one wants to end up in a soup during tough times. To prevent such circumstances, everyone should have an emergency fund that covers at least 6 months of their expected expenses.
  • 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.
  • Equity / Stock Markets: The equity asset class carries a high level of risk, but it also can produce the highest returns. This risk can be reduced by allocating funds for a long-term horizon. However, due to the high uncertainty of the stock markets, it is best to allocate a lower percentage of savings to equities for retirement planning. For individuals having less financial responsibility can invest a higher proportion in the Stock Market. But for those having high financial liabilities, can invest a lower percentage in Stock Market to protect against volatility

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 to 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. We aim to make commercial, high-ticket-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.

Rental Income For Retirement in 2022 FAQ'S:

The rental income that the owner produces is considered regular income under the current Indian regulations. As a result, anyone generating a lot of money gets required to pay taxes on it.

You can avoid paying taxes on rental income through the following ways.

  • Municipal taxes: Many individuals are unaware that municipal taxes such as property taxes and sewage taxes can get deducted from rental income. 
  • Standard Deduction: Regardless of actual repair and maintenance costs, you can claim 30 percent of Net-Annual Value as a Standard Deduction. 
  • Semi Furnished/Fully furnished properties: Owners of such homes supply amenities such as WiFi, piped gas, DTH/Cable TV, newspapers, and so on. Such costs are collected as part of the rent and paid to the appropriate authorities by the owner. Alternatively, you may get it individually from the renter and thus not include it in the rent. As a result, your rental revenue will get reduced.
  • Joint Property: If your partner is not working, this is the best-case scenario. In this instance, you have the option of purchasing property jointly or solely in the name of your husband. The rental income will get distributed per the percentage of ownership of the property. As a result, you can avoid tax on Rental Income allocated to your spouse.
  • Bifurcate the maintenance charges and rent amount: You can lower your rental revenue even further by urging your renter to pay property maintenance costs (if any) straight to the Society and advising your tenant to pay rent to you.

The income tax department permits a standard deduction of up to 30% of gross rental income. The property owner can claim this standard deduction for refurbishment or upkeep of the property.

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