Discussing money with your parents may not be easy, especially, with the generation gap and outlook difference regarding investments and finances.
Ask any retired couple about where they had invested their earnings, and most will tell you their maximum allocation is in fixed deposits or government-sponsored schemes with the rest put in stocks, real estate, and a bit of gold. This is not surprising as the mutual fund industry in India started in 1963. The expense ratio was exorbitant in those days and there were only few takers for such a professional take on investing in stocks en masse.
Though many new investment options came to the fore, many people rue how their parents continued with age-old options and now find it difficult to sort out their finances.
If you are shouldering your aged parents’ responsibility, you can indeed help them resolve their financial issues without affecting your own by following some simple tips. These include:
Check for their debts
Ask your parents politely if they owe any money to anyone including banks or financial institutions. If yes, then inquire about the nature and extent of liability and check if they are able to repay on their own. Though many people repay their loans before they retire, it should not be surprising if they had sought a loan late in their lives and had to be content with an extended loan tenure owing to hiked interest rates.
Then verify if they can afford to prepay the loans without affecting their lifestyle expenses. If yes, then advise them to prepay the loan and get rid of it to avoid paying added interest. However, if their financial condition does not encourage them to opt for loan prepayment, you may consider taking out a small portion of your savings and prepaying a part of the loan so they benefit from a shorter loan tenure while repaying their loan through equated monthly instalments (EMIs).
Did they save enough for retirement?
It is important to evaluate how much money they had saved for retirement. Most importantly, if they have a pension plan in place that can serve as a regular monthly income. To start with, check if they have liquidated all investments or are still continuing some of them. Make a list of all their investments and their current market value. Then, check how much they need every month and if their money can be reinvested in fixed-income plans so that they can survive on the interest income without hurting their lifetime savings.
Do they have enough health insurance?
This is a pertinent question as your aged parents are bound to suffer from age-related issues in the future. Ask them if they had bought a health insurance plan and the extent of coverage they have. Check if the insurance amount is enough to cover their hospitalization and subsequent treatment expenses. Also, check who else is covered under this plan, lest you might have to end up paying for your younger siblings’ treatment expenses.
Do they need professional advice?
It is never too late to seek help, especially, from a professional who will chart your parents’ needs and wants in one sheet, and their investments and liabilities in another to gauge the validity and longevity of their investments and consequent earnings from them. If you are unsure of how to sort out your parents’ finances, you might as well recommend them a financial expert who will then guide them about how to segregate their finances to meet their immediate and future needs without resorting to taking debt or looking for a passive income source.
Many aged people view retirement as synonymous with financial independence at the age of 60. This explains why some of them view the millennials’ idea of financial independence, and retire early (FIRE) as unconventional. Many may disregard your ideas as too new and advanced, thus, making it more difficult for you to explain to them how to sort out their finances for a secure post-retirement plan. However, a bit of explaining can convince them to relook at their finances for a comfortable, retired life.