While many millennials want to support their parents financially in their old age, setting aside resources becomes a tough task. A clear understanding of savings, investments and expenses is essential to gauge the extent of financial assistance required by parents.
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. If they are still a few years away from retirement, help them to devise a better financial plan for retirement.
As you know that at some point in life you have to support your parents, it is better to start preparing from an early age on. Start a systematic investment plan (SIP) in growth instruments like equity mutual funds to let compounding work in your favour. Equities are known to give inflation-beating returns over the long term and investing in it through mutual funds will bring in the benefits of diversification.
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.
Opt for SWP
Systematic Withdrawal Plan (SWP) is just the opposite of SIP. Investors can withdraw a pre-defined money from the scheme on a regular basis. It will help to generate an additional cash flow for your parents which can act as a substitute for their salary. 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.
Plan their second innings
Most parents nowadays do not find the idea of sitting at home, after long years of service or business, appealing. 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 bring some additional income without the strain of a hectic job. 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.
Arun Thukral is MD & CEO, Axis Securities