Going grey certainly has its advantages. Senior citizens' discount for air travel, grandchildren to indulge, best seats on the bus, the old cronies club and lazy mornings.
It's Sunday and sunshine 365 days of the year. But only if they don't have money on their mind. So if your dad hasn't been able to figure out whether his retirement fund will be enough or how he can secure it and live off it and maybe even manage some consistent returns then you've come to the right place.
We are here to help you help dad! Banish all the worries from your dad's head so that he can sit back and enjoy the sunshine he so richly deserves:
1. Meet liquidity
Firstly, build up a cushion for your parents' regular expenses. You can do that by keeping funds equivalent to 4-6 months of their monthly household budget in cash and bank savings account. Banks will give little by way of interest, but they offer highest liquidity. They can withdraw their money at any time.
2. Manage routine expenses
Retirement means that their regular income like salaries would come to a halt and your parents would have to plan for inflows themselves by structuring the corpus in an appropriate manner.
Your options are:
i. Senior Citizen Savings Scheme (SCSS): Provides risk-free regular income either monthly, quarterly, half-yearly or yearly. Interest offered is 9 per cent per annum which is taxable and the principal is locked-in for at least 5 years.
ii. Post office monthly income scheme: Provides risk-free regular income at interest of 8 per cent, which is taxable. The lock-in in this case is 6 years.
iii. MIP (Monthly Income Plan) from mutual funds: This is for the slightly brave hearted. Offered by mutual funds, these have an element of equity to boost returns (in the form of dividends) which vary from 6 - 8 per cent per annum and are tax-free.
iv. Immediate annuity product from Life Insurance Corporation.
3. Prepare for medical needs
Grey clouds may mar dad's eternal sunshine occasionally when he falls ill but don't worry. What he is saving on routine expenses like conveyance will be consumed by others like medical expenses .
The biggest protection against huge medical expenses is medical insurance. If they don't have a medical insurance policy, take one soon.
Besides medical insurance, you also need to help them build a fund for medical emergencies not covered by the insurance. Financial Planner Gaurav Mashruwala suggests, "For this, you need to invest in market neutral products where you must manage inflation risk. Floating rate funds are the best bet here." The amount you would put into this would depend on individual needs.
4. Plan for the long-term
Your parents still have long healthy years ahead of them. Besides their regular income needs, they may also need lumpsum funds at regular intervals, either to plan an exotic vacation for their 50th wedding anniversary or to spoil their grandchildren (your children!) with new gizmos. In such a case, your investment strategies can be planned according to your time horizon.
i. If they need some funds after 3 or 4 years, the best place to invest would be in bank fixed deposits and bonds. These are secure instruments that offer returns between 5 - 6 per cent per annum.
ii. If they are looking at a longer-term horizon, they can venture into equities. Convince them that equities require at least 5-7 years to be able to give reasonably good returns while riding market booms and busts. These are also the most tax friendly instruments today. Dividends are tax-free and so are long-term capital gains taxes. If they hold their equity funds for more than one year, they don't pay any tax on sale. If they sell them within a year, they pay 10 per cent tax.
So don't believe anyone when they tell you that retirement is a curse. The only curse is mismanaged funds. Retirement can be nothing but eternal sunshine if you help dad do the right things. That will make you look smart and he feel proud!
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