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How to provide for parents, kids and still save
Abhijit Mitra, Outlook Money |
February 01, 2008
Naval architect Jayanta Roy, 44, lives with his family in their Kolkata home. There's wife Rupa, 39, son Deepro, 10, and parents, Kalyan Kumar, 65, and Kana, 65. In October 2007, Kalyan had to be hospitalised with respiratory trouble. Since he has no medical insurance, Jayanta had to pay the Rs 20,000 for his treatment. But the Rs 1,000 or so worth of medicines Kalyan and his wife need each month is paid for from his pension of Rs 8,500.
While Jayanta is financially vulnerable to his parents' medical emergencies, at an emotional level he and his parents are glad that he can help during their moments of need. But life is never that simple. Jayanta's own financial needs are swelling. He has to pay home loan EMIs of Rs 17,000 for 14 more years, and Deepro's education costs are looming. He doubts that he is prepared to be, 25 years later, where his father is today.
India's emerging 'Sandwich Generation'. Jayanta is part of India's emerging 'sandwich generation'. It comprises, says the Merriam-Webster Dictionary, people caring for their ageing parents and supporting their own children. The term is a US coinage of the Seventies that gained enough currency to be included in the dictionary. People have dealt with being sandwiched for generations, but with the social structure changing this set is facing new challenges and must prepare for it differently.
|Medical Cushion OptionsStandard and special health insurance policies and their premiums available for senior citizens|
Cheapest regular health covers
Sun insured (Rs lakh)
|How to read this table. If a 60-year-old wants a Rs 100,000 cover, the lowest premium on offer is Rs 2,255 by Cholamandalam. These are only base premiums; actual premium depends on health profile. Taxes extra. For Cholamandalam, premiums for ages 60-70 are only for renewals and dependent parents. |
|Special health covers for senior citizens|
|Entry age (yrs)||46-70||60-80||60-69||61-80|
|Renewals up to (yrs)||75||90||Not specified*||80|
|Max cover (Rs lakh)||3||1**||2||3|
|Cover for pre-|
|After 3 claim-|
|Oriental Insurance and New India Assurance have general mediclaim policy which is extended up to the age of 80.|
Pre-existingdiseases are covered in some cases but the premium load will be decided by the insurance company
*Star Health says guaranteed renewals beyond 69 years but does not specify the age limit for Rs 200,000 available for additional premium
**Anual premium for sum insured of Rs 100,000, excluding taxes
***Reimbursed if proposal accepted
****No medical check up required if holding health plan for preceeding three years
What's Creating the Sandwich Generation?
Rise of nuclear families. Based on Census of India data, Bert N. Adams and Jan Trost, in Handbook of World Families, say the percentage of Indian households that are joint families has declined from 20 per cent in 1981 to about 18.50 per cent in 2001. Simultaneously, the percentage of nuclear families has risen from 68.10 per cent to 70.40 per cent. In other words, more and more Indian adults are staying away from their parents. In many cases, that's limiting their concern to those that they live with.
Increased job mobility. Helping the creation of nuclear families is work-related mobility, which has increased over the same period and continues to do so. Experts say that people joining the workforce today will end their careers after having been in as many as 15 jobs, not all of them in one place. This, along with increasing urbanisation and industrialisation of India, traditionally a catalyst for growth of nuclear families, is breaking up the joint family system.
Increasing longevity. Meanwhile, Indians are living longer than before. Today, an urban Indian can expect to live till the age of 80, perhaps more, longer than the 60-plus years that his father could, and will need a much bigger corpus to see him through retirement. Unlike many other countries, India doesn't have old-age doles that provide baseline retirement income and public healthcare systems that provide subsidised healthcare. Clearly, among the urban Indian middle class, the children will have to eventually take up the role of providing financial and other support, despite the changing family structures.
Different folks, different strokes. The impact on the members of the 'sandwich generation' manifests itself in different ways. Take the case of Delhi-based Saikat Roy Chowdhury, 37, a manager at a trade event firm. In his case, it is not money but caregiving that is the foremost issue, something that is exacerbated by the fact that he and his aged parents stay in different cities.
|Creating Parents' Regular IncomeThe five common ways of creating regular requirement incomes is to choose from regular income options from Post Office Monthly Income Scheme (POMIS) and Senior Citizens' Savings Scheme (SCSS). These can be augmented by bank fixed deposits, life insurance immediate annuity plans and mutual fund monthly income plans or MIPs which have equity exposure of up to 20 per cent. This data exhibit gives you a snapshot on What's on offer.|
Post Office Options
|Max Inv. (Rs)||Features||Tax breaks|
|POMIS||8.00||1,500||Single joint A/C*||6-yr tenure;|
|SCSS||9.00||1,000||15 lakh||5-yr tenure; min age 60:|
55 for VRS; also available
with public sector banks
|*Rs 450,000 for single A/C. Rs 900,000 for joint A/C. Rs 900,000 invested in Post Office MIS can give monthly income of Rs 6,000 and Rs 10 lakh in Senior Citizens' Savings Scheme can give about Rs 7,5000.|
|Bank fixed deposits|
|Rs 10 lakh invested in bank fixed deposits can give an apprx.monthly income of Rs 7,500|
|Life insurance-immediate annuity|
Immediate annuities give monthly income on investing a lump sum
| Pension options||Income(Rs)|
| Life Annuity||7,675|
| Life Annuity with return of Purchase Price||5,831|
| Joint Life Last Survivor without return of Purchase Price||6,023|
| Joint Life Last Survivor with return of Purchase Price||6,023|
| Annuity Guaranteed for 5 yrs and life thereafter||7,595|
| Annuity Guaranteed for 10 yrs and life thereafter||7,426|
| Annuity Guaranteed for 15 yrs and life thereafter||7,206|
|All figures are indicative and based on Purchase Price of Rs 10 lakh. An amount of rs 10 lakh invested in immediate annuity can give an approx. monthly income of Rs 5,700. If Rs 10 lakh is invested (Purchase Price) in the plan, mmonthly pension for entire lifetime would be approx. Rs 7,673. The Purchase Price is not retuned under this option. Figures for ICICI [Get Quote] Prudential Life Insurance.|
|Mutual funds-monthly income plans (MIPs)|
| HDFC [Get Quote] MIP-LTP||17.30||18.20||14.90||16.00|
| HSBC MIP-Savings||15.80||20.50||15.30||14.40|
| Principal MIP Plus||15.90||25.70||15.80||14.10|
| Birla MIP-Wealth 25||15.60||15.70||13.20||13.00|
| FT India MIP||24.10||17.10||13.10||12.60|
|Rs 10 lakh invested in mutual funds-MIP can give an apprx. monthly income of Rs 12,000 (non-guaranteed)|
Returns more than a year are compounded annualised .
As on Jan 10, 2007. Source: MutualFundsIndia.com
Saikat lives with his HR consultant wife, Shinjini, 36, and son, Soham, 6. This limits the extent to which he can take care of his parents Soumen, 73, and Shila, 62, who live in Kolkata. The fact that his father is strongly independent does not make the task any easier. 'We are fine; you need to look after yourself and your family' often ends any effective conversation even before it can start.
His parents' support system is in people of their age. Minor illnesses are often attributed to 'advancing years' and ignored. Saikat worries. It will be a good four hours before he can reach home if there's a contingency.Financial help aside, those who live together, or in the same city provide the care that physical proximity makes possible. Others, with parents in different cities, worry.
"Today, parents want to be independent; they do not want to live off their children's earnings," says Mumbai-based Gautam Nayak, partner at chartered accountancy firm Contractor, Nayak & Kishnadwala, who, among other things, handles legacy and money management matters for a number of elderly clients. He adds, however, that many of them do need people to do their running around for them.
Like Saikat and Jayanta, an overwhelmingly large number of the urban mass affluent Indians around 40 are at a stage where the responsibility of the parent is getting added to those of their children. The umbilical cord remains intact, even across geographical distances.
There's also the delicate task of caregiving without treading on the toes of dignity and self-respect. Add to this the pressure of preparing for the kids' higher education and the final frontier of their own silver years. The feeling of being weighed down with responsibility often overtakes the joy of family life.
Take the case of Puneet Arora, 34. A graphic designer, he would like to move to Bangalore to better work prospects. He lives with his parents, Pratap, 65, and Neera, 60, sister Ira, 31, wife Nikita, 31, and daughter Jaya, 4, in the family house in Delhi.
If he moves, the emotional and caregiving support structure of his parents will be substantially weakened, what with his sister about to get married. There is a sense of insecurity that will set in once the house becomes empty. Nikita, who flies with an airline, is out of station from time to time. With parents around, Jaya is in good company. Puneet hasn't yet been able to find a solution that will take the headache out of his move.
While each family will find its own rhythm, we can ease the pressure a bit by suggesting ways to negotiate this busy phase of your life. We present financial planning strategies that take care of the parents, the kids and your own money needs. And maybe the sandwich will not get grilled!
Managing Your Parents' Finances
Create a cushion for medical expenses. Healthcare costs are rising rapidly. Aging parents with fixed old-age incomes find it difficult to cope and often see their living standards plummeting. The children, too, may find it difficult to pitch in. More so for people like Malini Gupta, 40, an advisor at the gender desk at an NGO in Delhi, a single mother with two daughters, Akshara, 11, and Akhila, 6.
Apart from looking after her daughters, she has to meet half the expenses in her parents' household, where she now stays. Evidence of her vulnerability came in when her father, Dipankar, 71, had to undergo complex heart surgery in June 2006 at a private hospital. The total cost: Rs 600,000. Since he did not have medical insurance, after drawing out her father's available cash, Malini and her sister had to chip in with the rest, even borrowing to cover the last bit.
Fortunately, her employee health benefit covers her parents as well as her daughters. She could get most of the costs reimbursed.
Not everybody can. So, experts recommend adequate health covers for ageing parents. "It helps you manage the risk of unforeseen and substantial lump sum expenses without jeopardising the rest of your finances," says Swami Saran Sharma, a tax and risk management expert. It makes sense to buy health insurance for yourself too, he adds.
You can also include your parents in your medical policy and avail a deduction of up to Rs 15,000 under Section 80D. If your parents are senior citizen taxpayers, you could gift them up to Rs 20,000 a year and they will get a tax break if they pay their health insurance premium. This cuts the household's tax outgo. Now, special health covers are available for the elderly along with the regular covers.
Create an effective support system. Parents might require funds to supplement their retirement funds or they may simply need logistical support to manage their finances, especially if they live in another city. Sometimes, relocation of either the parents or children is the best way out.
Shubhomoy Ray, 37, lives in Delhi with his wife and 2-year-old son, and has another child on the way. About a year ago, he quit his job and started his own consultancy company with two partners. His brother Shantomoy, 34, who runs an advertising agency, too, lives in the same city with his wife and 3-year-old daughter. A few months ago, they shifted their parents from Kolkata to Delhi.
Their father, Debatosh, 66, was living in his house in Kolkata after retirement, but was spending a lot of time in Delhi. Besides the problem of looking after the house when they were away, there was the issue of having someone at hand in case of an emergency.