As they strive to give the offspring the best, parents often end up jeopardising their own future. They toil hard to put the children through school and college. Access to summer camps, cricket or dance lessons are encouraged. When higher studies beckon, they pour in more money for the best tuitions. When the admission letter arrives, they happily sign off the cheque or take on a huge loan. At the child’s wedding, money is no object.
Often, the same parents find that their retirement savings do not add up to much. They are left pinching pennies in their sunset years, when they should be enjoying the fruits of their labour. If you have aging parents who fit the above description, step in as soon as possible. Are they saving enough? Are they investing wisely? Do they have adequate health cover? Are their documents in order? In the following pages, we will outline how you can help your parents get their finances in shape. From rebuilding their corpus to reworking their portfolio, the biggest gift you can give them is peace of mind in their golden years. Here are some steps you can take to get your parents on the path to a more secure future.
SHARE THE BURDEN
In India, often earning children live off their parents. In an HSBC survey, 44% of retirees who had not saved enough said continued financial support to children was a reason for the shortfall. If you want your parents to live a comfortable retired life, share their financial burden, starting with higher studies. With children increasingly opting for studies abroad, costs have sky-rocketed. Fees for an MBA or MS programme can set you back by Rs 30 lakh to Rs 1 crore, depending upon the varsity chosen. Then there are living costs.
“Children must not put the entire burden of funding higher studies on their parents,” says Neeraj Chauhan, CEO, Financial Mall. While parents usually don’t object out of love, they have to dig deep into their savings to bear the cost. Chauhan’s suggestion is children should pitch in by working part-time to cover living expenses. Children can also opt for a joint education loan, with the parent as a co-borrower. They start paying off the loan once they land a job, or after six months of completion of the course, whichever is earlier. Parents repay the loan only if the child defaults. Similarly, instead of your parents shelling out lakhs for your wedding, contribute with your to-be partner towards the expense.
If you are working but staying with your parents, share the household expenses. The more you allow your parents to save towards their retirement, the better off and less dependent on you they will be. There is even a taxefficient way to contribute to expenses— if you pay rent to your parents, you can claim exemption on the same if your employer offers you house rent allowance. However, the parents have to own the house for you to be eligible for this deduction. Punebased IT professional Satyam Chawla lives in his father’s house and pays him rent while his own home is rented out. “Living with my father allows me to take care of him, while the rent ensures he is financially independent,” Chawla says.
As your parents near retirement, help them chalk out a plan. First, ascertain their financial situation. Assure them that your only concern is that they should have sufficient income to live comfortably. Understand the lifestyle they want to lead and then assess existing savings and income to plan towards it. Amol Joshi, Founder, PlanRupee Investment Services, highlights the importance of a subtle approach. “As parents, they held your hand to guide you through various situations; convince them that it is now your turn to hold their hand.” Being well versed with the newer realities, the younger generation is in a better position to protect parents from frauds who prey on the less aware and vulnerable.
CHANGE THE APPROACH
The next step is to ascertain if your parents have saved or are saving enough. The immediate concern on retirement is replacing regular income with money from investments. If their post-retirement costs can be adequately met through the existing corpus, then you have no worries. But if not, you must look at shoring up their savings. If they have more than 5-7 years to go before they retire, you must convince them to harness the potential of equities. ““The biggest contribution you can make is to change perceptions and make parents look beyond traditional options,” says Hemant Rustagi, CEO, Wiseinvest Advisors, referring to the dependence on fixed deposits, Public Provident Fund (PPF) and Senior Citizens Savings Scheme.
HOW LONG WILL THEIR SAVINGS LAST?
Assuming your parents have a initial retirement corpus of Rs 50 lakh and plan to withdraw Rs 30,000 a month, here is how long their savings will last for different return expectations.
Mumbai-based Yash Khanolkar identified this problem in his parents’ portfolio early on. Realising they had not saved enough, he slowly shifted their money out of low-yield fixed deposits into equity-oriented funds. “The perception was that mutual funds are only for the younger generation. But there are products available to suit different risk appetites,” says Khanolkar, adding his parents are now in better financial shape. .