Your dad complains of inadequate returns from his favourite investment: the fixed deposit. Yet he cringes when you tell him to invest a small portion of his retirement money in equity mutual funds to improve the returns and future income. You then wonder how long can he make his ends meet by simply sticking on to FDs. Does this ring a familiar bell?
This is probably the story in many urban Indian families - making every rupee of the retirement income count is not just the concern of the retired. Today, financially independent children of the retired share the concern of preserving the cherished financial independence of their parents and would do their bit to help them manage their finances. This help becomes crucial as people progress late into retirement.
Usual financial activities, such as tracking investments, taking care of formalities and paying taxes, become more and more difficult with age. More importantly, as retirement funds get used up, parents need good advice to shore up their income. Here's a brief guide to be your dad's financial advisor.
Communicate. Help should ideally be advisory in nature. "Provide your parents with the options, inform them of the pros and cons and let them decide," advises Brijesh Dalmia, certified financial planner, Mandar Financial Services. Also, help them work with information about their monthly expenses and the money they would need to meet those, given a particular life expectancy.
Helping them beyond FDs. A major challenge for children who are helping retired parents manage their funds would be to get them to see the ill-effects of putting all the eggs in the FD basket. In case they insist on sticking to fixed income instruments, you can suggest them to park their money in, say, a Post Office Monthly Income Scheme.
In case the monthly income is more than what is required, the surplus can be invested either in a recurring deposit at the post office, or an SIP of an MF. "Sticking to fixed income instruments is not the solution. The biggest concern is the ability to fight inflation," says Veer Sardesai, a Pune-based financial planner.
How To Help
- Play an advisory role. Tell your parents on how to work out their monthly expenses and the income streams to meet them.
- Introduce them to financial assets beyond bank FDs, such as equity MFs and ETFs.
- Emphasise the need for having a health cover.
- Point out the importance of estate planning.
Another suggestion that you can make is that they park only that part of their retirement corpus in a bank FD that will be enough to generate cash flows to take care of monthly expenses. The balance should ideally be parked in an exchange traded fund with a horizon of 10-15 years. The aim is to ensure that corpus grows and the returns are tax-free.
Assist in managing healthcare costs. After inflation, rising healthcare costs is the next major threat to the well being of the retired. Ensure that your parents are covered under a health insurance plan with adequate cover.
Make it a point to explain the details of the health policy and clear out their doubts, if any. Sardesai has an interesting suggestion. He proposes that children could take care of the healthcare costs and ensure that the parents invest some part of their corpus in index funds so that the corpus keeps growing and beats inflation.
Facilitate estate planning. Help your parents prepare an estate plan that lays down the heirs of specific assets. A Will is not only crucial for smooth transfer of assets to heirs, but also ensures that the surviving spouse continues to enjoy the benefits of the assets.
Clearly, after retirement, life comes back a full circle, where you get the opportunity to help and support your parents the way they did early on in your life.
