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economictimes.indiatimes.com /wealth/plan/how-to-help-parents-manage-money-during-
retirement/articleshow/57218184.cms
By
Sanket Dhanorkar
, ET Bureau|
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 childs 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.
Children must not put the entire burden of funding higher studies on their parents, says Neeraj Chauhan, CEO,
Financial Mall. While parents usually dont object out of love, they have to dig deep into their savings to bear the
cost. Chauhans 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 fathers 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.
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In Pic: Satyam Chawla, 33, Pune IT professional
Helping hand: Pays rent to his father and also invests in
recurring deposit for him.
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.
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In Pic: Yash Khanolkar 36, Mumbai Investment consultant
Helping hand: Introduced his parents to equity investing
Having reaped the benefits of investing in mutual funds, 30-yearold Vinay Sarda weaned his parents away from the
40-odd traditional policies they had accumulated and redirected the money into balanced funds. It didnt make
sense to hold on to the low yield policies that only provided a measly cover, he argues.
While the thrust should remain on safety and liquidity, the portfolio should also have the ability to beat inflation.
Instruments like bank FDs, PPF or SCSS will not get your parents over the line. While you must secure their needs
for the next few years with safer assets, they should be taking on more inflation-beating assets if their savings are to
last 30-35 years, says Rohit Shah, Founder & CEO, Getting You Rich. The problem emerges in later years when
the pace of withdrawal is fast. Here, equity investments can bolster your savings, he adds. Joshi concurs, Not
having some equity exposure after 60 years of age is more destructive to your portfolio. Without it, you will struggle
to maintain the quality of lifestyle that you desire.
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Equity exposure can be through safer balanced funds or monthly income plans (MIP) of mutual funds. Even within
the safer investing avenues, investors must look at short-term bond funds for a tax-efficient payout, says Joshi.
These enjoy the benefit of indexation after three years. Income from fixed deposits, on the other hand, is taxed at
the marginal rate. Joshi suggests putting in a lump sum into 1-2 debt funds at retirement and starting a systematic
withdrawal plan (SWP) from the same to generate a regular income. The SWP amount would depend on the extent
of shortfall in monthly income from other sources. Shah suggests dividing post retirement money flow into 3-4
buckets, with around 60-70% of the money directed into a pool of fixed income savings comprising fixed deposits.
The rest should be put in debt funds, which can be increased gradually over the years.
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. Mumbai-based Sonu Joshi bought
a separate health plan Rs 3 lakh each for his Dehradun-based parents, despite the Rs 5 lakh cover provided by his
employer.
Health plans for senior citizens come with conditions, so identify the best fit. Most health policies after a certain age
will not cover pre-existing diseases for up to 3 or 4 years. You can opt for the co-payment option that will come with
a lower cooling period for the coverage to kick-in, says Joshi. Some policies will carry sub-limits for specific
treatments. Some policies also come with specific benefits. For instance, Apollo Munichs Optima Senior covers 140
day-care procedures which do not require 24 hours hospitalisation. National Insurances Varishtha Mediclaim and
Bajaj Allianz Silver Health cover pre-existing illnesses after 1 year from inception of policy.
If you or the parents cannot afford the high premium, opt for a lower individual cover of Rs 3 lakh for each parent and
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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.
With returns from safer fixed income instruments coming down, the retirement corpus is under threat.
The other option a reverse mortgage on their house, where they would receive a steady stream of income from a
lender against the property. This would imply that the parents will not be able to bequeath the property to their
children. With each payment, the banks ownership of the property increases. After the death of the owner or last
surviving spouse, the heirs can either claim back the ownership by repaying the loan, along with interest, or let the
bank sell the property.
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