Retirement Plans to gift your dad

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The dynamics of retirement are changing fast. Life expectancy is on the rise, and so are medical costs and lifestyle diseases. At the same time, corporate employees are getting redundant faster, and pensions are getting smaller as people move from job to job quicker than ever before. Amidst these shifting and challenging retirement trends, you may be considering giving your father the very thoughtful gift of a retirement plan to ease the pressure on him during his senior years.

Where should you begin?

For starters, consider your father’s life stage. Is his retirement still a few years away (say, if he’s in his early fifties), or is it around the corner? If it’s the former, the best gift you can give your father is the gift of a financial plan that will help him maximize his retirement corpus when he finally hangs up his work boots for good.

Financial Planning is critical because most people get their retirement planning horribly wrong and end up spending their senior years with tightened belts, living at ‘bare minimum’ for fear of outliving their savings. Needless to say, this is an unenviable position to be in after 4 decades of hard work! If your father still has 8-10 years to go for his retirement, this is a long enough timeframe to take some corrective measures to make the most of his remaining earning years. Working with a qualified advisor to arrive at an adequate retirement corpus is the first step. In order to do this, various metrics such as current monthly spends, life expectancy, inflation, returns on post-retirement corpus and target retirement age will be taken into consideration. The results could be startling because your father may have relied only on ‘back of the envelope’ calculations until now, but by investing with the correct processes, managing behavioural traps, and taking measured risks, even large deficits can be covered over 8–10-year timeframes.

Now, let us consider the latter scenario – that is, if your father’s retirement is on the horizon. In that case, he will need to make sure that his existing savings go as far as possible, so a measured approach to risk taking is important. In case you are looking to make an investment on his behalf, please make sure that you avoid traditional government backed plans such as SCSS or POMIS, which have low post tax returns and provide no access to capital. Also, do not fall prey to the temptation of purchasing an annuity plan in his name from a life insurance company, however nice they may look on brochures! These plans are geared to provide very low returns in a normal life expectancy scenario, and funds once annuitized cannot be un-annuitized; so liquidity is virtually non existent in these plans in case your father needs to access the funds in an emergency situation.

Instead of just buying an ad-hoc ‘retirement plan’ for your father, have a joint discussion with him and a qualified financial planner on the maths first. Begin with how much he has saved up, add how much you can contribute annually or as a one-time ‘gift,’ and then work it backwards in terms of what is a feasible monthly income that can be generated by taking a measured degree of risk. Remember, this monthly income will need to be stepped up periodically to account for inflation too. Once you have done the math and set the right expectations, set up a well-diversified portfolio of equity mutual funds and fixed income assets (even senior citizen FD’s are OK), and put a robust SWP (systematic withdrawal plan) in place.

The best retirement plan that you can gift your dad is more than just money or an investment product – it is your effort towards helping him build, manage, and deploy his retirement corpus effectively with the support of a trusted financial planner. Doing this will go a long way in helping him enjoy his retirement years without worrying about money.

The author is Chief Business Officer, FInEdge. Views are personal