In October last year, 65-year-old Veena Sharma from Mumbai got a phone message with a warning that her bank account would get blocked if she did not update her KYC. In panic, she provided crucial information, only to realise a few minutes later that she had lost Rs.75,000 from her account. Being a victim to financial fraud isn’t the only misfortune that strikes the elderly as they cross the Rubicon into retirement.
They find themselves laden with high medical expenses, are unsure of how to invest their retirement corpus, how to leave their assets to children, even as they grapple with a tech handicap. “If their children or trusted family members can teach them about technology and guide them with their finances, they can be comfortable,” says T.Srikanth Bhagavat, MD, Hexagon Capital Advisors. So, if your parents too are facing the following challenges, here’s how you can help them secure financially
1.HOW TO INVEST THE RETIREMENT CORPUS
A pervasive dilemma among seniors is where to invest their life’s savings so that they don’t run out of money even as they earn a regular income. “The corpus value should factor in inflation and conservative returns that are 1-2% above inflation, and life expectancy of 85-90 years,” says Anup Bansal, Chief Business Officer, Scripbox. “In your 60s, at least 30% of the corpus should in be in equity to help beat inflation and grow your wealth,” says Dinesh Rohira, Founder & CEO, 5nance.com. While Rohira suggests investing in largecap bluechip funds, Bhagavat advises opting for balanced advantage funds.
The debt portion should be in Senior Citizen Savings Scheme (8%), Pradhan Mantri Vaya Vandana Yojana (7.4%), Post Office Monthly Income Scheme (7.1%), Time Deposits or fixed deposits, all of which are currently earning high returns. The cash component should be in liquid funds, short duration debt or arbitrage funds.
As they move into their 70s, they should continue to retain the equity component, but reduce it to 10-20% depending on the size of their corpus and risk appetite, while the debt and cash components should increase to 70-75%. In their 80s, they can do away with equity completely and keep the entire corpus in the safety of debt and sweep-in fixed deposits for ease of access. The withdrawals can be made through the systematic withdrawal plans (SWPs) and should be at a low 2-3% of the corpus in the initial years of retirement. This rate can be increased to over 5% in 80s.
How to invest corpus for retirement
Equity: Hybrid (balanced advantage) funds, large-cap bluechip funds
Debt: SCSS, PMVVY, POMIS, PO Time Deposit, fixed deposits
Equity: Hybrid mutual funds
Debt: Short-term debt funds, Post Office savings schemes, sweep-in fixed deposits
After 80 years
Debt: Post Office savings schemes, bank deposits
2.HOW TO BE READY FOR HIGH MEDICAL EXPENSES
One of the biggest challenges for the elderly is not only dealing with medical issues, but also being financially equipped to handle these, given the high medical inflation of 14-15%. While it is important to buy a comprehensive health plan of Rs.20-25 lakh at least by late 40s or early 50s, one can pick indemnity plans in one’s 60s as well.
However, these will be expensive, costing anywhere from Rs.25,000-40,000 a year. If you are buying such plans, pick those with a long term of renewability, low waiting period for pre-existing diseases, and a sum insured that can be increased with age (see table). “It should also have a wide network of hospitals, offer day-care treatments, cover pre- and post-hospitalisation expenses, and Ayush treatments as many seniors prefer alternate medicines,” says Bhaskar Nerurkar, Head, Health Administration Team, Bajaj Allianz General Insurance.
Instead of buying a big cover, one could cut costs by buying a smaller indemnity plan of Rs.5 lakh and a bigger super top-up plan of Rs.20-25 lakh, preferably from the same insurer. Another option is for children to cover their parents in the corporate plans at subsidised rates. It’s also important to have a buffer amount for the 8-10% out-of-pocket expenses that one is likely to incur.
Keep this amount in easily accessible sweep-in fixed deposits or liquid funds. “You can also go in for add-ons like hospital cash to take care of such expenses, and riders that offer 24×7 medical and emergency support like the Respect Senior Care rider,” says Nerurkar. Such medical care and extensive range of services is now also being provided by companies that offer packages for those who stay away from their parents and want to take care of them.
3.HOW TO AVOID FRAUD, MISSELLING
According to a pan-India survey by Tsaaro, a data privacy and cybersecurity services provider, 53% of people have an elderly person in their circle who has been a victim of cyber fraud. Most senior citizens are easy targets for financial scams not only because they are flush with retirement funds, but also because they are tech unsavvy and have a low awareness of privacy issues.
“Children should carefully list the dos and don’ts of digital payments, bank apps and online transactions for their parents. The senior citizens should also use bigger screens and fonts to avoid losing money by keying in wrong numbers,” says Bhagavat. They should be made aware about the risks of sharing passwords, PINs and other personal information, downloading attachments, and sending money to unknown sources.
Another fraud that the elderly are subjected to is misselling of financial products. Since most of them are unsure about where to park their corpuses, they end up buying unsuitable products for their age and circumstance, lured by promises of high returns that are peddled by bank staffers and agents. “Those above 70 years should add their children or close relatives to their accounts and take joint investment and financial decisions, even though the senior citizens must retain ownership and the right to choose,” says Rohira.
4.HOW TO PLAN YOUR LEGACY
Most senior citizens keep deferring succession planning either because they are not sure about whom to leave what, or are unaware of how to do it. Planning one’s legacy should be among the first steps to take after retirement and drafting a will is the best way to do it. Start by listing all your assets and the beneficiaries to whom you wish to give these assets. Then approach a competent person to draft the will.
“Remember to make the proposed beneficiary, nominee or joint holder of the asset as well, and if you want to exclude any relative who is a legal heir, mention the reason to avoid future disputes,” says Raj Lakhotia, Founder, DilseWill. Some people want to distribute assets through gift deeds while they are alive to avoid disputes over the will, but Lakhotia disagrees. “Since gifts are irrevocable, there is a risk that the person may become dependent on someone for survival. In case of a will, the property is in his control till he is alive,” he says. Besides, gifting an immovable property attracts stamp duty, while in case of a will, it won’t. Also, gifting assets to non-relatives is taxable, but it’s not so if transferred by a will.
5.HOW TO USE TECH FOR FINANCIAL TRANSACTIONS
While technology is an enabler for senior citizens who are staying alone, it is also a hurdle for those who are not tech-friendly. “Many seniors are seriously challenged by smartphones, login protocols and menu choices in user interfaces. Fintech apps and online banking sites should increase the elderly user base through technological innovations,” says Bansal of Scripbox. Children should also teach their parents how to conduct basic online transactions and follow safety protocols, while monitoring regularly to ensure their financial security.
Health plans for seniors
Cost of care packages Here are some plans with high entry age, low waiting periods and sizeable cover range for senior citizens.
WHAT NOT TO DO…
Avoid bank staff, agents
Do not buy products in banks or from agents as they are only looking at earning the highest commissions. So if you no longer have an income or dependants, do not buy ‘guaranteed return’ traditional insurance plans. If you need regular income, don’t buy products with lock-in periods like 5-year fi xed deposits or ulips. If you don’t understand a product, do not buy it.
Don’t react to panic SMSes
If you get an SMS or Whatsapp message about your credit card or bank account being blocked, your KYC needing immediate updation, your electricity being cut, or a virus attacking your system, do not respond, and consult your kids or a trusted person.
Don’t give information
No matter who the purported phone call, mail, SMS, or Whatsapp message is from, be it a bank, insurer, friend or employer, do not reveal your account number, PIN, password, address, or any personal information.
If you get a mail or message urging you to open a link or an attachment, or asking you to download information, it is most likely an attempt to hack your system and steal your identity or crucial information.
Don’t transfer money
Whether it’s your Facebook friend asking you via Messenger to lend some money, a mail from an acquaintance, a plea to help someone in distress, or to return a mistaken money transfer to your account, do not respond or send money to anyone.