That day Hitesh was actually sounding very emotional, after all he’s never lived away from parents since childhood. But now when his employer company was sending him to US for a project, he was worried on who will take care of his 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 time has come for him to take care of them; he’s moving out of 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.
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 responsible children everyone wants to support the parents. After all we exist because of them only. They have sacrificed their time, desires, hobbies etc. to give us a secure future, so now is our 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 planning touch into it.
Your financial arrangement for your parents, depend on 2 situations
1) Where the parents are financially dependent.
2) Where the parents are financially independent.
Before going ahead , it is important to do your homework first
Making arrangements may not be enough unless that arrangement actually serves the purpose. You have to understand your parents’ requirements. 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 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. Don’t suggest any solution to them at this step. Just listen. Listening is the key to proper understanding.
Also this step applies to both the situations mentioned above.
2. Check out your cash flow situation:
As it is you who have to arrange income for them, so you need to have thorough understanding of your financials. This will help you in figuring out the grey areas where you can make some adjustment for betterment of your 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 child 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 know that this policy neither suits your investment requirement nor insurance goal, so this makes the insurance premiums a non-productive spending.
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 basic expenses you have to take care of your parents’ desires and independence also. Along with, 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 some 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, 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.
b) When the Parents are not financially dependent.
If Parents are independent, getting a decent pension along with interest income, are adequately insured under government sponsored schemes and has no liability as such, then also it does not excuse you from your responsibility. 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 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. Its 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 there responsibility of gifting things to relatives on various occasions like marriage, child Birth, festival etc. Start a parents 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 etc. which is very much required when we are involved in financial planning for parents.
But to start with work on to improving the communication which will give you 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.
This article is the recreated version of my article originally written for onemint.com
Image source : www.thisismoney.co.uk