The two things that are most important to your parents are your time and their money. Often parents find that their retirement savings to be insufficient and they are left pinching pennies in their sunset years. If your parents are aging and 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? Upwardly presents 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. If you want your parents to live a comfortable retired life, share their financial burden, starting with higher studies. 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. 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 tax efficient 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 must own the house for you to be eligible for this deduction.
As your parents near retirement, understand the lifestyle they want to lead and then assess existing savings and income to plan towards it. Being well versed with the newer realities, you are in a better position to protect parents from frauds who prey on the less aware and vulnerable.
CHANGE THE APPROACH
Typically, parents have most of their savings in fixed deposits, Public Provident Fund (PPF) and Senior Citizens Savings Scheme. 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.
RETURNS OF TRADITIONAL INSTRUMENTS ARE FALLING
Those about to retire should explore investment avenues like equity-oriented mutual funds to bolster their savings.
*SCSS: Senior Citizens Savings Scheme
With returns from safer fixed income instruments coming down, the retirement corpus is under threat. So, you can help your parents manage their portfolio and create the right balance of equity and debt. Consider dividing the portfolio into three silos: Liquid funds to meet immediate liquidity needs and income for 12-18 months; debt investments to form the larger part of the portfolio; and a 10-15% exposure to equity to help beat inflation. The equity-debt balance can also be maintained by investing in hybrid or balanced funds with asset allocation as per one’s needs and risk appetite.
GET THEM COVERED
The rising cost of healthcare is the biggest threat to your parent’s finances. The best way to protect them is to ensure adequate health insurance cover. If your parents are not too old, consider buying a separate policy. The premium will be on the higher side, but these policies cover a range of ailments. A cover of Rs 5 lakh for a 50-55-year-old will cost around Rs 18,000-24,000 a year while a higher cover of Rs 10 lakh will carry a premium of Rs 30,000-35,000.
If you or the parents cannot afford the high premium, opt for a lower individual cover of Rs 3 lakh for each parent and take a top-up cover of Rs 5-10 lakh. This will reduce your premium outgo. Besides, you can claim income tax deduction up to Rs 30,000 if you are paying premium for your parents’ health insurance, provided they are over the age of 60.
So, let your parents spend a happy and content retired life. From rebuilding their corpus to reworking their portfolio, the biggest gift you can give them is peace of mind in their golden years. Help them explore investment avenues like equity-oriented mutual funds to bolster their savings. The retirement corpus cannot be built with the traditional instruments, as their returns are continuously coming down. Seek Upwardly’s expert financial guidance to make prudent decisions.
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