Should we be managing our parents retirement corpus?

I see more and more young earners trying to manage the retirement corpus of their parents. In a way, this is healthy and in a way dangerous.

Let us face it. Most retirement corpuses are not healthy enough. In the sense that one cannot wield them to generate an inflation-protected post-retirement income. This is especially true of our parents generation. Most of them never had any experience with equity or volatile instruments.

When a young earner tries to invest that corpus (or a part of it) in instruments unfamiliar to the parents in order to “generate better returns”, the results may not always turn out the way we want.

The first step in retirement planning is to recognize when senior citizens purchase an annuity. Or in other words, when can part of the corpus be exposed to volatile/risky assets and when to stick to the safety of senior citizen savings schemes and bank fds.

Utmost caution is necessary when working with a retirement corpus. A single market crash can destroy morale and self esteem. The usual rhetoric of “volatility = notional loss and it will all turn out okay in the end” does not apply to retirees.

I recommend first checking whether a monthly income that increases at least at the rate of 5-6% a year can be generated for the first 10-15 years in retirement using only ~ 60% (or less!) of the corpus.

If the answer is no, buy an  annuity.

If the answer is yes, then one can chalk up a plan using a tool like the inflation-protected Income Simulator.

Why should I buy an annuity? My parents are living with me. Why cant they invest in more tax- and return-efficient products?

If you are going to DIY , then to put it bluntly, you could die before them.

If you seek professional help, then it is best that the parents directly interact with the SEBI registered fee-only advisor.

Even otherwise, being from a different generation, they may not be entirely comfortable with handling volatility. Therefore, they will have to be made familiar and comfortable before going ahead with the plan suggested by the children.

Most parents get a pension, either from the government or from a superannuation plan. If this sum is healthy then, one might actively manage the remaining corpus (if any). However, they are at a stage in life when sudden medical expenses maybe necessary (a health cover is not a one-stop solution). Therefore, the room available to “play with” is rather limited.

Somehow I feel, it is better if we do not thrust our new-found and often preconceived notions of financial literacy onto our parents.

Unfortunately, many parents are to be blamed too. When FD rates started going down, they wanted other avenues which gave “better returns”. We all need to remind ourselves from time to time that there is no free lunch.

There are many posts on managing a corpus after retirement at freefincal. The most important ones have been compiled into a free e-book: Post-retirement income generation strategies. Do check it out.

Would you agree with these views?

Create a "from start to finish" financial plan with this free robo advisory software template

Free Apps for your Android Phone

Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

3 thoughts on “Should we be managing our parents retirement corpus?

  1. Pattu sir thanks
    Can you make excel monthly tracker spreadsheet .I found some websites but that are american in which year begins with Januarary month and in india we start our financial year from April.
    If we use american spreadsheets than it lacks incoherence.plz make it for us.Thanks

  2. This quote should be printed in gold in every blog that is coming nowadays.

    “Somehow I feel, it is better if we do not thrust our new-found and often preconceived notions of financial literacy onto our parents.”

    It is really funny that the young generation grown up during post globalization or post 2000 think they are smart because they put money in share market and all other people are fools

    during recent floods, i personally witnessed this generation swiping credit cards for buying brinjal, queuing up for hours in front of atm because no petty cash at home and furiously calling their banks to postpone their emi payments because internet was down

Do let us know what you think about the article