Tax threshold

We know that senior citizens have a tax threshold level that is higher than others. And this limit keeps getting hiked almost every budget. The current tax rules say that income for both men and women over 65 years of age till Rs2.4 lakh a year is tax free.

Deductions

The same deduction rules apply—up to Rs1 lakh is the tax deductible. Income generating products such as Senior Citizens Savings Scheme and five-year fixed deposits can soak up Rs1 lakh under section 80C.

Additionally, senior citizens can get Rs20,000 as a deduction for premiums paid for health insurance. So, a total deduction of Rs3.6 lakh a year.

Tax-free income

Up to Rs3.6 lakh a year, or Rs30,000 a month, can be tax free for a senior citizen if he uses the current tax rules and breaks. A corpus of about Rs40-45 lakh will be good enough to generate this income and would be tax-free.

For a senior citizen couple, who lives in their own home and has a corpus of about Rs1 crore to invest and live off, up to Rs60,000 a month can come as tax-free income.

A possible break up of products that a senior citizen with Rs50 lakh in assets could use is: Rs15 lakh in the Senior Citizens Saving Scheme and Rs23 lakh in a fixed deposit.

While this is a zero-risk portfolio, we would advise a person who is 65 to use at least 10% of his funds to get the growth to the corpus that only equity investments can give.

Using an index fund is a great idea for money that is not needed today. Income laddering is another strategy that you need to use to get a steady, inflation-adjusted income even after 10-15 years.