Sunday, October 4, 2009

Why we need financial planning for parents?

Why Should You Plan for Your Parents' Retirement....!!!

One of the biggest mistakes people make now is failure to set aside money for post retirement needs. Most of us are not concerned about the life after retirement. Social Security is no longer a sure bet. This means that most of us have to rely on ourselves to provide for retirement, if you want to fill your stomach you have to earn nobody will come and help you. In simple terms saving money to make your retired life happy is called retirement planning. If you haven't made an effort to make retirement planning, make it now. A financial planner can help you in finding a better option for your retirement planning. You can do your own research also to determine what you need to do now so that you are secure in your future. In this article a try is made to make you aware of the importance of planning for your parents retirement.
Why should you Plan for your parents Future
Securing the future of your parent is your responsibility; we all have to realize this fact. Think for a moment how much money they have spent for us...! This is the time to give back all those golden moments that they have gifted to you. They have sacrificed many things to make you grow to this level. If you are able to read this article now, there is no doubt they have spent huge money on you. If they wouldn’t have spent money for your food, health, dress, education etc. now you wouldn’t have seated in front of system and reading this article. There are thousand things you can do for your parents. Old age is like childhood during this period they need care and love, if you can spend a minute with your parents when they are old, it will be a great happiness for them. There are many factors that disturb people when they are old such as;

Lack of care
Negligence by others
Lack of love etc.

Parent’s Investment on you
If your parents don’t have money to fulfill their retirement needs, don’t ever degrade them instead you should realize the fact why they don’t have money. To mold a kid as a perfect citizen, his parent has to invest huge amount on him/her. While investing this amount they will expect “I am investing on my kind, in future whenever I need money my kid will take care of me” 80% of the parent will have this expectation, now it is our responsibility to take care of our parents. Following are some of the spending they have done for you;

Health care
Education, etc.
Needs to be fulfilled
Basically there are three kinds of need to be fulfilled such as;

Financial Needs
Medical needs
Moral Needs
Financial Needs
Nothing is possible without money, leading a life without sufficient money will kill the mental health of people. When our parents are old it is our responsibility to provide them enough money to take care of their small needs.

Medical Needs
Old age is the time during that all kinds of health problems will follow us. During this time we need to spend huge amount of money on our parent’s health like how they have done we were small. Taking a health insurance plan on your parents name will help you to find a simple solution for this problem.

Moral Needs
Moral support is the most important thing that we have to provide for our parents when they are old. It will help them to be mentally stronger. Moral support can avoid many problems such as depression, ill health, etc.

How can you plan for your Parent’s future?
There are many ways to do retirement planning. Following are some of the major ways in which you can plan your parent’s future.

· Reverse Mortgage
· Health Insurance
· Pension Plans (ULIPs)
· Immediate Annuity
· Annuity

Reverse Mortgage
Reverse Mortgage can be well defined as “a scheme under which a bank or financial institution permits the owner of a house to leverage the future value of the asset into a steady source of income”. Reverse Mortgage allows elderly people to have a steady stream of income by mortgaging self occupied property to banks or eligible financial institutions while continuing to live in and hold the title of the house till he is alive or sells the house or moves out.

In this case it is completely parents’ desire whether to go for reverse mortgage or not. But being their children we can do something for them. Normally parents will write their property in their children’s name even if they don’t have enough money to lead a peaceful life. Instead of making advantage of this situation we can advise them to go for Reverse mortgage, later if you want to retain the house you can pay back the money to bank and do it.

Health Insurance
Health care costs are high and getting higher day by day. As the age of an individual increases the health care costs increase manifold and become a burden on the individual. Senior citizens have to pay out of their hard earned savings to meet the expenses. Health Insurance Plans protects old age people in case they need expensive medical care. You get cashless benefit or medical reimbursement for hospitalization expenses due to illness or accidents.

It is our responsibility to take care of our parents’ health when they are old. But it is very difficult to manage this situation without proper financial planning because you might need huge money to take care of their health. Health Insurance is a better solution to overcome this scenario, it will take care of your parents health related expenses all you have to do is buy one health insurance plan and pay the small premium.

Pension Plans (ULIPs)
The first point to note is that there is no insurance in an ULPP, though the product is offered by insurers. Even if an insurer offers insurance cover bundled with pension, such a product is best avoided. Insurance is best taken independently from pension planning, through what are called term insurance plans. ULPP is very much an investment product, competing on costs, benefits and returns with Mutual Funds, deposits, share portfolios, and so on. In the accumulation phase, the amounts invested go towards purchase of units, at prevailing market rates. At retirement, the policyholder is provided with a certain portion of the accumulated fund as a lump sum payment. The remaining amount is used to purchase an Annuity scheme to provide regular monthly income post retirement.

Immediate Annuity
Immediate Annuity is aregular income stream purchased with a lump sum investment, where the income stream starts immediately after the purchase. Immediate Annuities are usually provided by a life insurance companies. The major difference between “immediate annuity” and “annuity” is that in immediate annuity you have to make a lump sum investment and you will start receiving the annuity immediately after purchasing it but in “annuity” you will start receiving amount only after a pre-determined period.

An annuity is an investment that you make, either in a lump sum amount or through installments paid over a certain number of years, in return you will receive back a specific sum every year, every half-year or every month, either for life time or for a certain number of years. After the fixed period of annuity payments expires, the invested annuity fund is refunded, possibly with a small addition, calculated at that time.

Annuities differ from all the other forms of life insurance discussed so far in one basic way - an annuity does not provide any life insurance cover instead, offers a guaranteed income after your retirement. Usually annuities are meant to generate income during one’s life after retirement that is why they are also called pension plans. Annuity premiums and payments are fixed with reference to the duration of human life.

Types of Annuities
There are four major kinds of annuities such as;
· Life Annuity with purchase Price
· Life Annuity without purchase Price
· Joint Life Annuity with purchase Price
· Joint Life Annuity without purchase Price
· Life annuity guaranteed for 5, 10 & 15 years

Life Annuity with purchase Price
In this kind of annuities the person receives annuities for as long as he/she lives and his/her nominee receives the purchase price of the policy after demise. The purchase price refers to the value of your investment corpus at the end of the accumulation phase (it is the amount with which the annuity was purchased).

Life Annuity without purchase Price
In Life Annuity without purchase Price the person receives annuities for as long as he/she lives his/her nominee won’t receives anything after his/her demise.

Joint Life Annuity with purchase Price
In Joint Life Annuity with purchase Price both you and your spouse will receive annuities for life. After his/her demise the purchase price will be returned to the nominee.

Joint Life Annuity without purchase Price
In Joint Life Annuity with purchase Price both you and your spouse will receive annuities for life. After the death of concerned person nothing will be returned to the nominee.

Life annuity guaranteed for 5, 10 & 15 years
In this type of annuities you receive annuities for a minimum term i.e. 5, 10 or 15 years. Annuities continue for life thereafter. If death occurs before the end of the pre-determined term, the company will pay the annuity till the end of that term to his/her nominee.

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