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| Capitalstars Investment Advisor |
As they strive to give the offspring the best, parents often end up jeopardizing their own future. They toil hard to put the children through school and college. Access to summer camps, cricket or dance lessons is 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 child’s 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 labor. 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.
SHARE THE BURDEN
In India, often earning children live off their parents. In an HSBC survey, 44% of retirees who had not saved enough said continued financial support to children was a reason for the shortfall. If you want your parents to live a comfortable retired life, share their financial burden, starting with higher studies. With children increasingly opting for studies abroad, costs have sky-rocketed. Fees for an MBA or MS program can set you back by Rs 30 lakh to Rs 1 crore, depending upon the varsity chosen. Then there are living costs.
CHANGE THE APPROACH
The next step is to ascertain if your parents have saved or are saving enough. The immediate concern on retirement is replacing regular income with money from investments. 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.
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. “Get your parents covered at the earliest. Without health insurance, their accumulated savings will take a hit rapidly,” warns Chauhan. The employer-provided family health cover may not be sufficient. Several employers have stopped offering health insurance coverage for parents in the face of rising premiums.
UNLOCK VALUE OF HOUSE
If the financial situation of your parents is grim, you may have to explore some uncomfortable options. Downsizing living arrangements is one. Explore the possibility of moving into a smaller, more affordable house in a more affordable locality. This would not only cut down on costs but also fetch a sizeable corpus from the difference in the sale value of the bigger house and cost of a smaller home.
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 bank’s 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.
GET DOCUMENTS IN ORDER
The absence of proper documentation at the time of death of a spouse can leave the other half vulnerable. As children, see to it that both parents are financially protected in the event of a death. “Ensure that assets are not held in single name and without any nomination,” insists Chauhan. Besides, having a Will in place should be a priority, and can go a long way in simplifying life for the legal heirs.
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