A guide to effectively manage finances for the elderly
As our societies witness tectonic shifts and family structures in India move away from joint family systems, loneliness among the elderly population has become a burgeoning problem. The number of senior citizens who are living alone has gone up significantly and for many people in the elderly age bracket, this has not augured well in terms of their quality of life.
According to a survey conducted in 2017 by Agewell Foundation, an NGO that has been working actively for the benefit of senior citizens, 47.49% of elderly people in India suffer from loneliness. Those living in urban regions are battling worse conditions with 64.1% elderly suffering from loneliness as opposed to the 39.1% figure among the rural elderly. The survey listed decreased interactions with family members, poor health, isolation and non-availability of social interactions as the main factors for loneliness.
For those who are not fortunate enough to have the support of their family members, financial security can play a pivotal role in offsetting some of the exigencies of living alone. For instance, lack of monetary resources can amplify the problems faced by the elderly as the option of receiving proper care and support from outside also can become unaffordable, especially during emergencies.
Asset allocation and inflation
Many people make the mistake of factoring in the influence of inflation in their older years merely as an afterthought. Not calculating how inflation can affect your financial reservoir over time can be a colossal mistake.
Parvati Iyer, chief investment officer at Femwealth, an online investment management platform emphasizes that the impact of inflation in your post-retirement years should not be underestimated at all while allocating assets. She says, “While planning for retirement it is essential that the asset allocation is tweaked keeping in mind the risk tolerance, the desired corpus and the time left to retire. The desired corpus should have taken into account the debilitating effects of inflation post retirement. If started early, a fair exposure to equity mutual funds often helps achieve retirement corpus goals easily without the need to be overly aggressive. Debt mutual funds can also be chosen and matched for that asset allocation.”
For a person saving for retirement, generating returns that can beat inflation might seem difficult. It’s not, provided he invests wisely in mutual funds. The world over, mutual funds have been highly successful in creating long-term wealth.
Seeking support in money matters
For senior citizens, it is important to make someone trustworthy from their immediate family privy to their finances. In most cases, old people entrust their children with the duty of managing their money so that in the event of any emergency, accessing funds is not a hassle and also because our societal fabric is woven in a way that for most elderly people, their children are the biggest support system. This assumes greater importance in the case of senior citizens living alone.
Sudhir Singh (name changed), a retired government officer, who lives alone in Kolkata says, “I have been living alone for a while now – my wife had passed away many years before my retirement. My daughter is settled in a different city and I have kept her in the loop regarding every aspect of my money matters since my wife’s demise so that she is prepared to handle my finances even if I reach a stage where I can’t.”
His daughter Priyanka explains that she keeps a tab on his finances so that she is prepared in the event of any emergency or if such a situation arises when she may have to step up. “It would be stupid to not envisage a time when my father will not have the mental agility to manage his finances by himself. I don’t want to wait till that day because it is a herculean task to figure out the intricacies of someone’s finances in a hurry should there be an emergency. Getting the support of adult children also ensures that senior citizens do not end up channeling money in bogus investment schemes,” she explains.
Factoring in the darker facets of life
While most people take into account the high possibility of inflated medical bills in the last leg of life, there is a tendency to believe that the health troubles will not start immediately after joining the league of senior citizens. Amrita Roy’s experience highlights that the conviction can be misplaced and a harbinger of troubles later on. “My husband became bedridden within a year of retirement due to Parkinson’s disease. His condition was so bad that we had to hire two nurses to help him with his daily living activities. He passed away after eight years and by that time, our retirement reservoir had depleted significantly due to the exorbitant medical expenses we incurred all these years. I have been living alone since then – my daughters live in different cities and in retrospect I feel, we should have taken health concerns more seriously when we planned for our retirement. Our health insurance policies didn’t provide adequate coverage either.”
Iyer narrates that senior citizens have a tendency to underestimate the domino effect of even seemingly small health emergencies. “The most obvious and critical issue that they need to tackle is having adequate health insurance early on - the hassle free, no questions asked, kind. Even if it costs a bit more! A simple fall in the bathroom can wreak havoc on their savings - most seniors tend to overlook this,” she says.
Iyer advocates the mantra of simplicity and stability for senior citizens when it comes to managing finances. She suggests, “Seniors looking for steady monthly income from their investments would find standard government zero-risk schemes to be best. Bank FDs are a safe bet even if post-tax returns turn out to be low. Many seniors are not tech-savvy, so online investment options are best avoided even if a friendly neighbour is there to help. Since some equity exposure is always a good idea, investments in mutual funds via offline channels is an option. One must keep in mind though that too many choices, information overload and lack of expertise become bigger problems over time. Similarly investments that are spread around become difficult to manage when there’s no one to help out. So it is best to look at two or three instruments overall. Well-off seniors often look to leave something substantial behind for their grandchildren. They should definitely invest that portion of assets in aggressive mutual funds for the long term.”
No one can accurately estimate how much money is enough for old age because your financial needs will be coloured by myriad factors like your or your spouse’s health condition, your family responsibilities, social obligations, your life-span, etc. To ensure you are capable of meeting all these needs in your old age, it is crucial to plan well in advance for it.
• If started early, a fair exposure to equity mutual funds often helps achieve retirement corpus goals easily without the need to be overly aggressive. Debt mutual funds can also be chosen and matched for that asset allocation.
• In case you do not have medical insurance, you should definitely get one and if you already have one, it is important to review from time to time whether it provides adequate coverage. Old age can trigger various health ailments and a good health insurance plan will give you the necessary financial backing.
• Older adults, especially those who are not technologically savvy can be easy targets for financial fraud. Family members can reduce that risk by setting up systems that send alerts in case of large withdrawals or any suspicious account activity.
• Exercise prudence while taking debts because freeing yourself from the debt cycle becomes tougher when your income is limited and this can become a major cause of stress.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.