Old age is a time when most people should sit back and enjoy life. After having slogged for 60+ years, its time one takes it easy from the humdrum of the day job and spends his/her time with hobbies. However, retirement can be cherishable depending on how one’s health is; how one’s financial planning is and how one utilizes his retirement nest egg.
The retirement corpus is the only savings a person has at this stage of his life and one cannot afford to put his money in the wrong places. Here is how you, the reader, can help your parents with their retirement nest egg.
Helping Parents in Retirement is to Teach your Parents about the Products
I recently had a client whose father hails from a small town in Tamil Nadu. While the client was very aware of investment avenues, the father was not. At an age of 62, the dad was loaded with 4 unit linked insurance plans (ULIPs), all of them bought in the last 3 years. I was taken aback by the fact that the son, my client, was not talking to his father to advise on where to invest and where not to invest. Maybe the ULIPs could have been avoided had they talked more often.
So the first thing as a responsible son you need to do it talk to them more often about the products. On a very high level, pick up a conversation about which products to buy and which ones to avoid.
The main aim during retirement is to generate income each month and keep the retirement corpus safe. Fixed Deposits (FDs) can do that well and that is probably why most of our parents would be invested largely in fixed deposits of banks. While in the current market scenario, that is advisable given the high interest rates, there are other products as well where the money can be parked at.
Helping parents in retirement is to help them out with information on Post Office Monthly Income Schemes (POMIS) and Senior Citizen Saving Schemes (SCSS).
Make them aware that with the inflation monster. Their returns from such products are less than what they think they are getting. And to counter that, a kicker in their returns is a must. Which means they need to take an exposure to the stock market. This is where you need to give out some path breaking advice.
I have clients and relatives who say they do not believe in systematic investment planning of mutual funds and direct trading is their cup of tea. They dab their hands on the stock indices. Then watch with bated breath the tickers as to how much money they made or lost.
Now that is a blunder at this age. So here is your chance to do some counseling for your parents if they take this approach. Warm them to the concept of index funds, Monthly Income Plans, Exchange Traded Funds and equity diversified mutual funds.
Keep their exposure to the stock market to a maximum of 20% while the rest 80% can be kept in debt. This way, their retirement corpus will be safe and will also grow each year.
Remember medical corpus and health insurance
While you diversify the investments for your parents, make sure you keep a good chunk of it in liquid avenues for their medical emergencies. At this age, people suffer from medical issues more and new ones can come calling without an invitation. Having access to quick money is a mandatory thing.
Helping parents in retirement is to help them purchase the right health insurance policy. There are so many insurance companies in the market. They are bound to have questions on what works best for them. Get to know of their requirements and handhold them in the decision-making process. You would rather have them buy the right health insurance product. Beware the not to put in money into one which comes a cropper when they actually need it.
Remember that for our parents, we as kids were their first love. They put a lot of effort in bringing us up. They invested their time and energy behind us. Made as good and educated kids. Its time we gave them back in the form of support, love and information that we know best. Their health and capital safety of retirement corpus are the two most important things after retirement. So, Helping parents in retirement is to help them with both.
All the best !
Good informative article, Radhe! Specially the point you mentioned regarding communicating with parents regarding finance management and discussing specific products.
@Jaswinder Singh, Thank you Jas. It’s a constant struggle at my end with my parents you know, sometimes I win sometimes they lose.
@Radhey Sharma, I like your choice of words “..sometimes I win sometimes they lose”!
Radhey,
Thanks for publishing this topic very helpful. But it is very difficult to convince parents on their investment. According to them only LIC is the insurance company which is safe. They are more satisfied with FD, PPF and POMIS. To them stock market/MF is a big no.
Rakesh
@Rakesh, I think I understand what you are saying Rakesh. It is very difficult to convince them about the stock markets. At this age, new things are difficult to be adopted.
I guess in such a case, it is better to stay away than to participate via direct trading.
Maybe FD, PPF and POMIS suit them best in this scenario.
@Rakesh, Try not to convince them, instead try to understand what they think about the various investment options and then discuss pros and cons for the shortlisted ones. This might help them understand and gain clarity on which option offers which benefits which’ll suit them.
Hi Radhey.. Good to read a article about the parents…and their retirement! 🙂
My father (has taken VRS couple of years back) is well versed with equity market & other investment avenues. He is abreast with the pros & cons of the avenues; and he himself is engaged in Intraday trading. My mother is a working lady; she is also acquainted with the avenues of growing wealth & she manages it quite well.
But it would be REALLY great (along with personally) if I can help them financially (in a small or large extent) in their retirement. Please let me know how can I do so?
Thanks!
@Sudip D, Wow Sudip, glad to know that your parents are better off in financial literacy than most of us out here!
I would say you should request them to join this forum and guide us with their wisdom and experience!
@Jaswinder Singh, Hi Jaswinder.. Good to see your reply here as well on my comment. 🙂
Well they are not internet savy..specially my mother. My father is confined as well in this matter.
@Sudip D, I guess the firs thing I would do is demarcate a small percentage of their money and ask them to do intra day trading only on that. Honestly, I find this a bit scary. History says that the small increments of money that you make in the stock market are wiped out in one instance of a loss. For your parents, capital safety is important. So while they keep a maximum amount of it in safe debt avenues, a very small percentage of it can be used for intra day trading.
Other than that, we could try and learn from their wisdom.
@Radhey Sharma, Hi Radhey.. Thanks a lot for your suggestion! 🙂
I will definitely suggest him to confine the money he is using for the intraday trading.
And yes, I’m definitely learning from their knowledge & experience; they only guide me to take my financial decisions. 🙂
@Sudip D, So Sudip, what do you do when they recommend to buy a policy from LIC? I am sure every parent does it and that’s a fair advise on their part.
How do you tackle the situation when you know that LIC policies are not as great as they appear to be and you parents advocate them a lot?
I ask this question because I get into this situation [and I am sure many readers as well] all the time and keen to know how people handle it.
@Vivek K, They do not pressurize me to buy either lic or any other insurance policies.
They are very up to date with the latest/useful investment alternatives.
You seem to have dedicated yourself COMPLETELY to this blog. Crossed a century comments.
Great going.
@Sudip D, That’s good to know Sudip, seldom parents change their perspective with changing times.
I dedicate my century to baby sitting and the bench. 😉
The idea and intention of this article is great but it is not as easy as it sounds. Remember we will always remain kids in the eyes of our parents and to advise them on anything especially financial planning is extremely difficult. Yea, one should keep trying but not get disheartened when the advise is not taken, which will happen most of the times.
Even my parents and my LIC agent who was a relative made me buy LIC’s money back policy in the late 90’s. I had just started work then and was not too keen to buy it then.