Gift Your Parents a Sound Retirement Plan

Parents tend to sacrifice a lot for their children. From fulfilling their day-to-day emotional needs to striving to give their best in education, our parents tend to go out of the way, always.

While one can never payback fully for their sacrifices, you can certainly provide them with a gift of gratitude, though.

A gift of a sound retirement plan will enable your parents to live an uncompromised life of respect and dignity. Here’s how to go about chalking out a retirement plan for your parents, which would be a way to ensure that they live a life of independence and pride.

Ensure They are Adequately Insured: Go for Maximum Coverage, Lower Premium Rate

The escalating cost of medical expenses could be a cause of financial concern as your parents’ age. Getting adequate health insurance coverage goes a long way in protecting them. The earlier this step is initiated, the better it would be for them.

If possible, discuss the matter with your parents, it will help you to undertake an informed decision.

Ideally, go for a separate policy in case the parents are not too old yet. The premium may be on the higher side, but it would cover most ailments, though.

To zero in on the best health insurance plan for your parents, ensure that you compare the quotes of various plans available online. It is only after this that you make sure to choose the one that extends the maximum coverage at a lower premium rate. Also, check the list of network hospitals that are the insurance company collaborates with.

Additionally, an emergency fund could also be generated by you to fund any medical exigency of parents.

Eye the Two-Way Solution: Gift Money to Your Parents, Save Considerably on Taxes

Gifting money to your retired parents could not only help in saving tax but also generate tax-free income under various sections of the Income-tax Act (ITA), 1961.

You can also make investments in their names and ensure substantial tax savings. This remains a two-way solution, as parents tend to get financially secure in their twilight years while you gain tax-free annual income from such investments.

Take, for instance, if you gift cash to invest in income-generating instruments to your parents who are senior citizens (age 60 years or above), then income from such investments will be taxable only if it is more than the basic exemption limit. It is possible to save tax on income of up to Rs 3 lakh from senior citizens and Rs 5 lakh from super senior citizens (age 80 years or above) as per the existing tax slabs for individuals.

Ideally, you can also make a gift deed to avoid any amount being regarded as unexplained cash, investments, or assets.

Arrange for Regular Incomes: Look Beyond Traditional Investment Tools, Opt for Systematic Retirement Plan

Analyse whether your parents have adequate savings to meet the monthly expenses from investments, pension plans and assets.

If possible, try and convince them to look beyond the traditional options of investments. Senior Citizens Savings Scheme (SCSS), Post Office Monthly Income Scheme and Senior Citizen Fixed Deposit (FD) are decent investment schemes as they offer annual returns of 8%, 7.4% and 3.5-8.95% respectively.

However, there is a need to build an investment portfolio that could suitably beat inflation. Exposure to the equity market could be initiated through investment in balanced funds or mutual funds offering monthly income plans. Short-term bond or debt funds that have an average maturity period for a portfolio between 1-3 years could be considered. Similarly, investment in large-cap mutual funds or exchange-traded funds (ETFs) can also be looked into. The overall idea should be to minimise risks while building the financial safety net.

You can also look toward gifting a Systematic Retirement Plan. For example, HDFC Life Systematic Retirement Plan is an individual/ group, non-participating, non-linked, savings deferred annuity plan.

This plan allows for gradual building of the retirement corpus with the flexibility to choose the deferment period.

HDFC Life Systematic Retirement Plan comes with several features. For example, one has the option to choose the premium payment term and deferment period as per convenience, annuity pay-out frequency–monthly, quarterly, half-yearly, yearly, or any date of choice.

The premium amount can either be based on the premium one wishes to pay to buy the annuity plan or on the annuity payout one wishes to receive in the future.

Deferment period shall begin from inception of the policy. At the end of the deferment period, the first annuity payment is made to the annuitant, in arrears as per the frequency chosen by the annuitant. The deferment period shall be chosen by annuitant at inception and it can be different from the premium payment term.

It extends guaranteed annuity for the whole lifetime by paying premiums for a limited payment term and it offers two annuity options –Life Annuity and Life Annuity with Return of Premiums.

The minimum premium across different frequencies is annual Rs 30,000, half-yearly Rs 15,300, quarterly Rs 7,800 and monthly Rs 2,625. However, there is no limit on maximum premium.

The minimum annuity payout across different frequencies is annual Rs 12,000, half-yearly Rs 6,000, quarterly Rs 3,000 and monthly Rs 1,000. there is no limit on maximum annuity payout, however.

Finally, whenever there is a need for clarification related to any of the financial planning or investments, always reach out to an expert professional to gather more insight into the same. Remember, the basic thumb rule: never make an investment when in doubt.