Do remind him to review his portfolio periodically, to ensure key goals are on track
Planning on spending some time with your dad, talking finances, helping organise investment avenues, retirement plan, etc? Great idea! A few tips might help. First and foremost, put him at ease on this sensitive subject by disclosing you are not an expert. Expert advice can sometimes be off-putting. Start by discussing your own financial needs and plans. Bring up your short term and long term goals, potential savings and investment avenues and how you are pursuing them. Only then should you bring up the topic of your dad’s financial health, by sharing your experience and learning.
To assist your dad with his financial planning, have a clear understanding of his present investments, trend of expenses and future obligations. Draw a summary of monthly recurring expenses, planned medical expenses, retirement corpus and an estimate of whether the present funds and investments are good enough to manage his current lifestyle through the golden years. While it may sound abstract and obvious, putting this to paper can be an eye-opener.
Importantly, check for existence of adequate insurance, especially health cover.
This curtain raiser should help take stock of the situation before the real financial planning conversation begins.
Review the investment portfolio
Your father may be holding several investments and fixed deposits. However, he may not be aware whether those investments are aligned with his goals. For instance, if the portfolio has 15 mutual funds of different kinds, then reviewing whether they suit a short-term or long-term horizon is essential. Reviewing past performance may also give insights into alignment to time horizon of the goals.
Another aspect to check is taxation. It would make sense to check which investments are long-term, in case there is a plan to redeem and reinvest funds elsewhere. This may reduce the potential tax deduction, if done right. In case of mutual funds, holding for a period longer than three years or indexation can help lower the tax burden. Ii is important to refrain from withdrawing recent investments, if immediate money prerequisites aren’t there.
The essence of designing a plan relevant to life stages and needs is reviewing and auditing the investment portfolio periodically, to ensure it is on track to accomplish key financial goals.
Thumb rule: Restrict the number of financial instruments to 10 or lower for ease of handling and managing the portfolio.
Plan for contingency
Contingency funds are essential in case of healthcare expenses, especially as one gets older. However, other last-minute situations, such as impromptu travel, may require additional provisions. A back-up emergency fund can help in such situations and ensure that you compromise minimally on monthly spending. Every time when an emergency fund is utilised, one must remember to recharge at the earliest.
Note: 12-months’ worth of recurring expenses is ideal for setting aside as an emergency fund. You can invest a portion of this money in liquid funds and the rest in your savings bank (preferably in a high interest providing savings bank account) for quick access.
Talking about loans is usually precarious. But it’s the elephant in the room that needs to be addressed at the earliest. Check with your father for any outstanding credit card bills, loans or borrowings, and in case it’s not included in the retirement planning, it can derail his goals and even put post-retirement lifestyle at risk. If the parent is close to retirement or has already retired, then paying off loans should be a priority.
Note: It is okay to liquidate some investment if there is a high-interest loan outstanding
Whether your father is retired or not, having a will and a power of attorney in place is fundamental. It is a necessity for anyone who has dependents. Not having a definite will is quite possibly the most common reason for confusion and conflict in case of an unexpected death.
Having a will ensures your father will have peace of mind and the satisfaction of knowing he shall leave behind a legacy and not confusion.
Note: Remember to register the will.
Organise the paperwork
Assemble details of all financial documents and data at one place. You probably won’t require everything, but you should have access to all of them with your parents’ consent. These include bank account details, medical information, credit cards, loans, tax returns, insurance policies, bill payments and their due dates. Also, get acquainted with your father’s financial advisor, if any.
Note: Digitise all important documents and maintain the docket online if your father is comfortable.
Our parents taught us to save. Now it is your chance to help them set their hard-earned money to work, so that they can accomplish their objectives and spend their golden years cheerfully. Happy Father’s Day!
The writer is Chief Operating Officer (retail banking) at Fincare Small Finance Bank
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.