How to generate retirement income for parents?

This is a guest post written by Manikaran Singal who is a certified financial planner and runs a personal finance blog - Good Moneying.

This is a very common question these days among so called “Sandwich Generation” who’s juggling between the different priorities like “to manage between 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. They have sacrificed their desires, hobbies etc. to give us a secure future, so now is our time to pay back. Even though the topic is all about income generation, since I am a financial planner, I could not stop myself to add on some financial planning touch into it.

There can be 2 situations where the approach can vary while working on this aspect.

1)     When your parents are financially dependent.

2)     Where the parents are financially independent.

You have to follow 3 step approaches to work on this:

1. Understanding: 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. Proper communication is very much required for proper planning. I know that subject of money has always been a taboo in our Indian society but this is where the challenge lies. 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 situation but if not then better to improve the communication. Don’t give solutions to them 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)     What expense you are making on your desires and what on your needs.

D)    Insurance premiums of not required policies you are paying just because you don’t want to book the loss or your. So called friend or your banker would feel offended if you discontinue that.

3.     Making arrangements:

When you have figured out the requirement, needs and desires of your parents and also have given financial shape to those, now is the time to make arrangements for your targeted goal. This is because the arrangements required to be made for them has to be from the surplus generated out of your cash flows. 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. But you have to take care of your parent’s desires and independence also. Along with you 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 this “monthly payments to parents” in your non-discretionary expenses option, so your surplus gets accordingly adjusted for your other goals. If the house is in your parent’s name then you may start giving them the monthly rent, this way you may get some tax benefit also. If you have some already accumulated corpus, 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. Also if at all required you can use products like “Reverse Mortgage” to generate comfortable income for them. Don’t forget to get them adequately insured of health, as this will indirectly help you in saving your savings.

 

b)     When the Parents are not 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 absolve 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.

 

Where parents are independent, many times it has been seen that they are in a habit of distributing the surplus 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. Though one should not allow them to do this but all this should be handled tactfully as it should not even hurt there ego. In other words don’t allow them to part with their savings. You 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. Please note that you should not intrude in their privacy and dignity. Start a parent’s welfare fund kitty and keep on putting some amount every month for parent’s welfare and responsibility. Adjust your cash flows accordingly. This fund will help you to manage emergencies 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 is the most important among all.

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