Help your parents to live a comfortable retired life

The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.

Indian parents and their millennial children often find it difficult to see eye to eye on a lot of issues. Differences in their thought process and general outlook towards life makes them question and regularly debate on their ‘illogical’ point of views, ending up with a conclusion that it is difficult to build the ‘generation gap’. In spite of the love-hate relationship that millennials share with their parents, their sense of responsibility towards the parents and the willingness to take care of them in old age are still strong.

According to a study, about 82% of Indian millennials still choose to live with their parents. This current family set-up is more progressive than the earlier joint family set-up as the millennials ensure to retain their individuality and at the same time, forge deeper emotional bonds with the parents. Millennials recognize the emotional as well as financial support parents provide them in such a set-up and are open to the idea of being the support of parents, in turn, when they turn old. 

It is an undeniable fact that parents start depending on their children, financially as well as emotionally, when they reach a certain age. This is particularly true post-retirement when the regular source of income dries up. Sound retirement planning by parents definitely helps in maintaining a comfortable life. But unexpected expenses are not unusual at their age, which only becomes more common with the lapse of time. In such scenarios, it becomes imperative for children to step in and be the pillar of support for the parents. 

While many millennials harbor the desire to support their parents financially, they find it challenging to make it a reality. Given that most of them struggle with loans or are planning for their own family, setting aside resources to help parents becomes a tough task. If you are a millennial facing this conundrum, take the following concrete steps to ensure financial independence for your parents at an old age.

Have a dialogue

Money matters are still not discussed openly in Indian households. A clear understanding of the savings, investments and expenses is, however, essential to gauge the extent of financial assistance required by the parents. As parents might feel awkward to have a discussion about their debts or financial obligations with the children, it is the responsibility of children to help parents overcome this inhibition for a frank and open discussion about money. Figure out the various instruments they have invested in, insurance that they have taken and loans that are in their name. Talk about their monthly expenses and use online calculators to factor inflation while arriving at the amount they will need to maintain their lifestyle post-retirement. Consider the extent to which their savings and investments will cover these expenses for determining the ground that you might have to cover. If they are still a few years away from retirement, help them to devise a better financial plan for retirement which makes their money work harder for them. 

Work out a plan 

An understanding of the current financial situation and future requirements of your parents becomes the base for your financial planning. Remember, there is no shame in first keeping your own finance on track. This will enable you to identify what amount you can comfortably set aside for your parents. This amount can then be invested in viable options to arrive at the corpus of funds you have discussed. Even after putting in your best effort, if you feel that you might not be able to put together the figures that you discussed with your parents, go back to step 1. Rework the budget with your parents to see if few expenses could be curtailed or deferred for a while or staggered over a period of time. Once you have gained the clarity, endeavor to set aside a certain percentage of your salary for your parents’ retirement. This approach reduces the burden of providing money in one go and also ensure that you make the magic of compounding work by adopting the SIP route. 

Start young   

You know that at some point in life you would need to step up and be of support to your parents. It is better to start preparing for this inevitability from an early age on. This one step will go a long way in building a comfortable corpus of funds for your needs and that of your parents. Start a SIP in growth instruments like equities and mutual funds to let compounding work in your favor.  Equities are known to give inflation-beating returns over a long-term while mutual funds bring in the benefits of diversification and professional management. You can invest in both these instruments via SIPs. 

To give you a perspective, assume that you start a mutual fund SIP of Rs. 1000 per month for your parents when you turn either 20, 30 or 40 years old and continue the SIP till you retire at 60. The rate of return is a modest 12%, see how starting early would help you:

Opt for SWP 

SWP (Systematic Withdrawal Plan) is a relatively new concept in India. SWP is just the opposite of SIP. While in SIP, investors can invest a pre-defined amount on a regular basis in a mutual fund of their choice, in an SWP, investors can withdraw a pre-defined money from the scheme on a regular basis. SWP will help to generate an additional cash flow for your parents which can act as a substitute for their salary. Once you have accumulated substantial funds through investment in equities or mutual funds, you can make a lump sum investment in an SWP. While your parents will receive a pre-defined sum on a regular basis, the remainder of investment in the scheme would continue to earn higher returns. 

Fund for medical care 

Healthcare comprises a major chunk of expense when it comes to taking care of elderly parents. Ensure that your parents buy a health insurance before they turn 50 as few insurers cover people after they cross that age. If they have crossed that age and don’t have a health policy, explore options like floater policy and special senior citizens plans. You can also work towards creating a separate emergency fund over and above the planned savings. You can use the SIP route or make a lump-sum contribution, like on receiving your yearly bonus or on the maturity of an FD, to create the emergency fund. 

Help them plan their second innings 

Most parents nowadays find the idea of sitting at home, after long years of service or business, not appealing at all. They yearn to be active and retain their sense of independence till their health permits. This is where millennials can make a huge contribution in helping their parents find a purpose. Millennials have started tapping unconventional employment avenues to pursue their passions. They can use their digital skills and out-of-the-box ideas to assist their parents in finding activities that keep them engaged and brings some additional income without the strain of a hectic job. For example, parents who like teaching can be connected to students in the locality for tuitions, parents who like animals can be encouraged to be pet sitters, parents who love gardening can be guided to sell their organic produce in the farmers market, and so forth. The idea here is not to force them to earn after working all their life but to give them a sense of satisfaction and meaning by pursuing what they really enjoy doing.

Parents are regarded as the epitome of sacrifice, going all out to secure a happy future for their children. While it may never be possible to repay them for their love and care, as children we can always make efforts to ensure that they have as comfortable a future as they dream for us.

Originally published in Financial Express, Sep,19.