Why Your Rental Income Alone Will Not Be Enough To Sustain You Through Your Retired Life

For most Indians, property ownership has been a tried and tested route to financial security. With urban rents increasing in places, such as Bengaluru, Delhi, Mumbai, and Kolkata, the prospect of retiring on rental returns is becoming increasingly popular.

One aspect that makes rental income popular for retirees is that it continues to flow even after you stop working. However, whether this income alone can sustain you throughout your retirement years is subject to various factors, such as the location of your property, its value, yield, and ongoing costs, among others.

Understanding Rental Yields

Rental yield is the annual rental income expressed as a percentage of the property’s market value. It’s a useful way to assess the profitability of property investment.

According to Anarock research, in 2024, Bengaluru had the highest average rental yield among all major cities at 6 per cent, followed by Mumbai at 4.15 per cent, and Gurugram at 4.1 per cent.

Kolkata has registered a significant rise from pre-COVID levels, from 3.3 per cent to 3.8 per cent. At the lower end, Delhi was at about 2.9 per cent, followed by Chennai and Hyderabad at 3.1 and 3.2 per cent respectively.

Although these numbers indicate a rising trend, they are nevertheless quite modest. Rental yields in developing nations across the world can be as high as 6-8 per cent, so Indian yields are relatively low compared to that. This difference becomes crucial when rental income is considered as the only source of sustenance in retirement.

Estimating Retirement Requirements

Let’s say a retiree has a house in Bengaluru that costs Rs 1 crore. At a rental yield of 4.45 per cent, he or she would receive Rs 4.45 lakh a year, or Rs 37,000 a month as rent. A comparable property in Delhi, on the other hand, would fetch him or her approximately Rs 2.9 lakh a year or around Rs 24,000 a month in rent.

But is that enough? According to a 2023 report by the Indian Ministry of Statistics, the monthly expenditure for an urban family of two senior citizens is around Rs 35,000. This covers food, medical expenses, transport, electricity, and other essentials—but not luxuries or emergencies. Evidently, in lower-yielding cities, depending only on rent will not be enough.

Additionally, costs are increasing. India’s March 2024 retail inflation was 4.85 per cent, and food inflation crossed 8 per cent. If rental income doesn’t grow but living expenses rise, retirees will be left with strained budgets in the long run.

Hidden Costs and Risks

Rentals aren’t necessarily secured. As a landlord, one might have to spend on plumbing, electrical repair works, or for carrying out major repairs and painting, which could lead to a substantial drain on your finances. If you are employing a property manager, add another 8-10 per cent on your rental income as expenses.

There are also regulatory risks. In some states, rent control legislation restricts the amount by which rent can be raised every year. A slow housing market can also affect the resale value of the property, possibly diluting long-term capital.

Taxes

While you have to pay tax on rental income, the Income-tax Act, 1961 provides exemptions on certain deductions. Section 24 of the Act provides for a deduction of 30 per cent of the net annual value for maintenance and repairs. If there is a home loan, interest payments of up to Rs 2 lakh can also be deducted under Section 24(b) of the Act. But for individuals with no loan or those who own high-value properties, the taxable income can still be high. Incorporating taxes in planning becomes important while depending on this income to meet fixed monthly expenses.

Diversifying Retirement Income

Financial planners normally discourage relying on a solitary source of income in the post-working stage. Rental yield, though helpful, should optimally be supplemented by other sources, such as pension payments, Employee Provident Fund (EPF) investments, fixed deposits, or returns from investments in mutual funds. One of the reasons for this is that rental yield is illiquidity—selling an asset takes time, and property markets do not necessarily help sellers.

In addition, mutual funds, Senior Citizen Savings Scheme (SCSS), and Pradhan Mantri Vaya Vandana Yojana (PMVVY) provide fixed-return alternatives and tax relief. These can assist retirees in managing liquidity, lowering risk, and catering to both routine and unexpected needs.

The Bigger Picture

Retirement these days is not what it was a generation back. Individuals are living longer—life expectancy in India is over 80 years now. Which means retirement will extend for 20 years at least or more.

Thus, depending on a single rental property—particularly from cities with low rental returns—might not suffice. Those who have several properties in high-demand locations are perhaps better situated. A retiree having three houses in Bengaluru or Gurugram, for instance, could earn up to Rs 1 lakh in monthly rentals, which would provide greater leeway.

It is possible to retire on rental income, but only if the circumstances are right. The property's location, its value, how much maintenance it needs, and the state of the market all come into play. With increasing yields in certain cities, the trend is encouraging. Nevertheless, rental income must be considered as part of an overall retirement strategy—not the whole strategy. Having more than one source of income, an emergency fund, and a long-term focus on inflation and expenses will go a significant way in facilitating a secure and worry-free retirement.