Should we be managing our parents retirement corpus?

Published: August 5, 2016 at 11:34 am

Last Updated on

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?

Join our 1500+ Facebook Group on Portfolio Management! Losing sleep over the market crash? Don't! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free! Did you miss out on the lockdown discount? You can still avail it! Follow instructions in the above link!

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?

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps

3 Comments

  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

Comments are closed.