That day Hitesh was actually sounding very emotional, after all, he’s never lived away from his parents since childhood. But now when his employer company was sending him to the US for a project, he was worried about who will take care of his now old age parents back home.
He got married last year and knows that his parents had spent most of their retirement savings on that occasion and now when the time has come for him to take care of them; he’s moving out of the country.
He wanted to stay back and leave the job, but financial benefits were looking quite lucrative, as he knows that going forward his family’s expenditure will surely be increasing and so his responsibilities to support both ends i.e parents and kids. Kids will be with him but parents would be far away, so he just wants to be sure on the money management as well as health management front for his old age parents.
This is a very common question these days among those who I call as of Sandwich Generation who’s juggling between multiple priorities like maintaining lifestyle, saving for their child’s future and own retirement, and also taking care of the needs of their parents.
Being a responsible child, you want to support the parents. After all, they are the reason for your existence. They have sacrificed their time, desires, hobbies, etc. to give you a secure future, so now is your time to pay back.
Here are some of my thoughts which I shared with Hitesh on this. Though his main requirement was to generate retirement income for parents, but being a financial planner, I could not stop myself to add on some financial and life planning touch into it.
Money Management for your old age parents depends on 2 situations
1) Where the parents are financially dependent on you
2) Where the parents are financially independent.
Before going ahead, it is important to do your homework first
Making arrangements for old age parents, may not be enough unless that arrangement actually serves the purpose. You have to understand your parents’ requirements first. You need to talk to them.
I know that subject of money has always been a taboo in our Indian society but this is where the challenge lies, and to reach a proper plan this kind of discussion is a must.
Discuss with them their wishes, hobbies, pending desires, their monthly expenditure, etc. If you are staying with them then it may be easy for you to understand the requirements but if not then better to improve the communication.
Please Don’t suggest any solution to them at this step. Just listen. Listening is the key to proper understanding. Listening to someone actually makes them feel important and being cared about.
Also, this step applies to both the situations mentioned above.( Also read Retirement planning case Study)
2. Check out your cash flow situation:
As it is you who may have to arrange income for them (from your own sources), so you need to have a thorough understanding of your financials. This will help you in figuring out the grey areas where you can make some adjustments for the betterment of your old age parents. You have to dig deep into your cash flows.
A) Note down each and every expense, your discretionary / Non-discretionary spending.
B) Family expenses, expenses on self, on your children, etc.
C) Demarcate your expenses based on your needs and wants.
D) Also, determine the productivity of your expenses. For e.g. there may be some insurance policies which you are continuing just to please someone who can be your friend, neighbor, banker, etc. And you also know that this policy neither suits your investment requirement nor insurance goal, so this makes the insurance premiums non-productive spending.
The same may go with the Gym Memberships, club memberships, and maybe you are overdoing the weekend breaks. Check out your spendings for “one time expenses” which are happening on Regular Intervals.
I had a long discussion on this topic on my Money talks episode. You may like to watch it.
3. Making arrangements:
Now after figuring out where to go and where you are, now is the time to make arrangements for your targeted goal. At this step, we have to consider the two situations mentioned above
a) When parents are financially dependent.
This situation can be managed partially when you are living along with parents, as most of their basic expenses will get managed within the family expenses, where you can contribute easily.
But besides the basic expenses, you have to take care of your parents’ desires and independence also. Along with this, you also have to take care that they should not feel like a burden on you.
So adjust your cash flow accordingly and start giving a fixed monthly amount to them. Better to include these monthly payments to parents in your non-discretionary expenses option, so your surplus gets accordingly adjusted for your other goals.
If the house where you are living is in your parents’ name then you may start giving them the monthly rent, this way you will get some tax benefit also, by claiming it under HRA.
If you have some accumulated corpus with you or receive an annual bonus, then you may invest that in post office monthly income scheme, Senior citizen saving scheme, or bank fixed deposits to generate comfortable, safe, and secure monthly income. You may also buy the immediate annuity plan for them. (Read: 6 ways to generate regular income out of savings)
Don’t forget to get them adequately insured for health, and this will also help you in more tax saving. Moreover, it’s not only about tax savings, it about saving your savings because you are the one who has to take care of their medical expenses
b) When Parents are not financially dependent.
If Old age Parents are independent, getting a decent pension along with interest income, are adequately insured under government-sponsored schemes or have separate Health Insurance cover, and have no liability as such, then also it does not excuse you from your responsibility, and you have to get into Money management a different way.
Many times it has been seen that pension may not be enough or may only be enough for the basic expenses. So in this scenario, you have to support your old age parents, to help them achieve their desires.
Where parents are independent, many times it has been seen that they are in a habit of distributing the money they have in the form of gifts, like giving down payment for car or house, or buying insurance policies in the name of grandchildren, etc. It’s advisable that one should restrict them from doing this but all this should be handled tactfully as it should not even hurt there self-esteem. In other words, stop them to part with their savings.
In fact, it is you who may gift them some things of necessity time by time and share with them their responsibility of gifting things to relatives on various occasions like marriage, child Birth, festival, etc.
Start a parent welfare fund kitty and keep on putting some amount every month for parents’ welfare. Adjust your cash flows accordingly. This fund will help you to manage emergencies and responsibilities in a better manner. You may also gift them a vacation every year.
Please understand that in any financial arrangement, Intention matters more than resources. There are some more aspects to support parents besides generating regular income for them like making bank accounts joint, reviewing of Nominees, being in touch with doctors, getting regular health check-up, arranging a caretaker, a driver, streamlining the financials, working on Power of attorney, etc. which is very much required when we are involved in financial planning for parents.
But to start with, you have to work on improving the communication which will give you a solution to all you ask for.
How do you find my views on generating retirement income for parents? I would love to learn your experiences on this. Do share in the comments section below.
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