Should you use your retirement corpus to pay off loans?

Retirement is the era of life in which you bid farewell to active employment and begin to enjoy your leisure time. 
Apr 2023
2 mins read
Retirement allows you to pursue your bucket list. However, retirement also means limited income, and while your responsibilities may have been met, your day-to-day expenditures continue.
Furthermore, you require finances for both your medical demands and your bucket list. People build a retirement corpus based on their retirement financial demands. However, if a debt is still owed, the retirement corpus should ideally be avoided for repayment of it, unless it is a high interest loan.
Once retirement kitty is used to pay loan, replenishing the corpus can be difficult, especially if you are nearing retirement or have numerous goals vying for your attention and funds. After retirement, you'll need a sizable nest egg to cover your living expenses as well as any medical bills. Rising inflation will require you to have enough assets to meet financial obligations after retirement. Furthermore, if properly invested, the retirement corpus might provide a source of monthly income. Using up the corpus would not only deprive you of a regular income stream, but it would also make meeting your expenses difficult, leaving you financially dependent.

Liquidate other investments
Learn how to manage your debt so that you can service your loans on time. Pay off any outstanding loans with your disposable income and other savings. Avoid using your retirement savings because refunding it may not be your first concern once you've used it. So, save your retirement fund and use other measures to repay your loans.

Corpus is essential for a retired life
Retirement corpus is crucial to generate adequate returns on an annual basis so that you could continue maintaining your current lifestyle even after retirement. The health insurance will help you mostly eliminate the major healthcare expenses pre and post-retirement, and the life insurance would ensure that your family has financial protection. Know that the policy premium increases as you age. So, it is better to get them when you are young.

By paying off you might lose out on tax benefits
If you have a home loan, prepaying it will also result in the loss of the tax benefits due to the loan. A house loan provides tax advantages on both the principal and the interest paid. While the principle repayment is deductible under Section 80C of the Income Tax Act of 1961, the interest payment is deductible under Sections 24 and 80EEA of the Act. As a result, if you continue to make loan payments, you will receive tax benefits for as long as the loan is valid.
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