In a country like India where there is inadequate social security for elderly people, it is obvious that majority of people at old age have to take care of themselves in financial terms. The problem is getting accentuated because of several reasons. First, hardly 10 per cent of people are engaged in pensionable jobs and have to depend on savings of the past. Second, in view of declining retirement age and increasing longevity, the corpus needed for living is showing a continuing rising trend.
Today on an average, a person has to plan for approximately 20 to 25 years of post-retirement life which is quite long. Third, inflationary trend has made cost of household expenses rising beyond imaginations and it is difficult to cope with.
Fourth, medical contingencies are unpredictable and costs for some life-threatening diseases in private hospitals are beyond reach of an average individual. And finally, declining jointly family is forcing elderly to depend on themselves rather than children. As age of an individual increase, so does age of the children and their responsibilities and therefore, children are increasingly finding it difficult to support their parents financially.
The situation is precarious and obviously elderly need to be concerned. Criticality increases if the individual is neither a retiree from a government / semi-government job nor does have an insurance.
Planning towards Financial Independence:
In the above context, every elderly person needs to plan for himself / herself and his / her spouse to financially sustain for a period of around 20 to 25 years of elderly life. The journey of financial planning, in fact, should start mush earlier while a person is young as lots of tools of financial planning as well as flexibilities are available so as to build an adequate corpus on retirement. This in fact often does not happen. Lesser salaries or high family commitment may dry up the savings and thus may leave a person in uncertain position on leaving an active life. For these people, post-retirement planning becomes more important.
Some of the tips in this regard include:
1. Follow the principle of minimalism. It means that expenses must be reduced to basic needs and luxury expenses be minimized. This should not be construed as a generalized statement or considered as advice to follow a miserly life style. Idea is to see that an elderly person should think wisely before making a spending decision, if such expenses are needed and whether savings are adequate. Wherever possible and if need be, overheads should be optimized keeping in view future contingencies. This also applies to determine whether to continue to keep own car or dispose it.
2. For elderly people, liquidity and regular cash inflows are the most important considerations in any investment. As a matter of abundant precaution, it is recommended that elderly people should invest in appropriate schemes of Banks / Post-Office / LIC that can give regular cash income adequate to cover monthly needs besides leaving some surplus as savings. Requisite investment must be made in special schemes of Banks / Post Office for senior citizens.
3. Considering the fact that bank deposits are insured only to the extent of Rs 5.00 lacs, it is always wise for the elderly to diversify life earned savings in different banks, to the extent possible. We have seen a number of elderly losing their life earning due to some bank failure in India. While choosing a bank also an elderly requires prudence without being swayed by higher returns. It is always good to take an expert advice in case of any doubt while selecting a bank for investment.
4. An important question always arises whether the elderly should invest in capital market to get higher returns particularly as bank returns have plummeted in recent times. While it is difficult to answer the question in binary sense, we suggest that an elderly person should avoid going to the capital market unless he / she has invested in the past. Further, a maximum amount of around 10 to 15 per cent is what we suggest be invested in capital market if the two most important criteria are met: person has a strong risk appetite and there is availability of an advice from a good investment advisor. Preferably such investment should be limited to mutual funds.
5. We suggest that an elderly either staying alone or with spouse should move to a smaller house if the existing house is big. Besides being an idle asset, it is also difficult to manage a big house as age progresses. Hence on a practical note, an elderly couple may shift to a smaller place by selling the bigger house. It will generate some cash as well besides saving in property tax.
6. It is not a bad idea to shift to a well-managed elder home or senior citizen complex. This has quite a few advantages. First, cost of living may come down. Second, one need not remain busy with routine household work. Third, one can spend time fruitfully with like-minded elderly people and share happiness / sorrow and lead a contented life.
7. And finally, for senior who are house rich but cash poor may resort to reverse mortgage under which a senior citizen can mortgage the residential house to a bank and get a specific amount for a given time (say 20 years). Besides augmenting monthly income for the given period, say 20 years, the elder can continue to stay in the house till his / his spouse’s death. It is a convenient way of raising money for the seniors who have a residential property.
Concluding Thoughts:
Meticulous planning is needed to gain financial independence which is an essential prerequisite for a good life. We may have good health, may be mentally active but we would require money not only to survive but also to lead a healthy life. It requires some amount of number crunching. It also needs some sacrifice in the short term to have a good life in the long run. Elders may also consider consulting some credible financial consultant, if need be, to make a judicious and adequate financial planning to achieve financial independence.
