Treat your advisor like a doctor and lay out all requirements to figure the right amount of corpus. It is important to take advice on financial planning as soon as you start earning money
Struggling financially and living on rent, yesteryear tycoon Vijaypat Singhania, who is entangled in a very public dispute with his son, is a case-study of what can happen to parents when their children renege on their promise.
Unlike the West, Indian culture believes in securing the future of children. It is also expected that children will take care of the parents’ well-being in their old age. While parents mostly keep their end of the bargain, grown-up children sometimes don't.
You don't need to have Rs 10,000 crore business or a palatial house to have a spat with your son/daughter. As a middle-class retired person with a family, you will probably end up with a house and some wealth through investments and savings over your working life. But if you are not careful, even those humble assets can get out of your control.
DNA Money tells you three important tips that will help you avoid such ugly situations.
Assess your retirement goals: Once you are retired, you will not have earnings power. Having adequate retirement funds will ensure you are financially independent. Consult a financial advisor and derive an amount that you will require when you retire.
"Treat your advisor like a doctor and lay out all your requirements to figure the right amount of retirement corpus. You should do this, as soon as you start in life. You can amend/update your goals as you grow older," says Abhinav Angirish, CEO, Abchlor Investment Advisors.
Once you know the corpus required, you start building it by investing as and when you start earning or preferably monthly. Each month, religiously park savings into long term investment vehicles like equities or mutual funds.
"Parents strive hard to secure a bright future for their children and in most cases, this coerces them to compromise with their own future. As a consequence, they have to pinch pennies during their dawn when they should be financially independent. Committing all the assets for children or any other goal is not a good strategy since there is no cash flow in the old age and it is these assets that can sustain the balance. They should separate own and children investments early in life to ensure there is a clear focus," advises Tarun Birani, founder and CEO, TBNG Capital Advisors.
Insure your investments: Insuring your investments means that you will not dip into the savings when you need funds for emergencies like medical expenses. Have an adequate health cover for your family and yourself. Try and take health covers that cover old age as well. Additionally, adequate life cover is also a must for the earning members for the family to ensure that enough capital is available that does not disrupt the goals in case the earning member is no more.
"Don’t get emotional! When it comes to money, being emotional is the biggest mistake one can make. One mistake can jeopardise the financial safety of the entire family. Hence, ensure that you stick by your goals sent during your financial plan and deviate only if you have planned the change," says Angirish.
Create a trust: For wealthy individuals, it would be prudent to create a trust which will have pre-defined terms when the funds will be released to the family. Simply put, a trust is a legal document that permits you and your successor trustee to transfer assets (such as property) prior to and after your death.
"You don't need to have a lot of wealth to set up a trust. Take the help of an estate planner who will guide you and properly frame the document as per your wishes. One should frame the trust in such a way that even if you are not mentally fit as it often happens in old-age, you will be properly taken care of," says Neha Pathak, head - trust and estate planning, Motilal Oswal Wealth Management Ltd.
A grantor is the person that sets up the trust. Trustee and successor trustee are persons or entities that will follow and manage your wishes as per the trust document upon your death. Beneficiaries are the individuals or organisations that will benefit from your trust assets.
REAL-LIFE GUIDANCE
- Treat your advisor like a doctor and lay out all requirements to figure the right amount of corpus. It is important to take advice on financial planning as soon as you start earning money
- When it comes to money, being emotional is the biggest mistake one can make, say experts
- Take the help of an estate planner who will frame the document as desired. A well-framed Trust will ensure you’re taken care of even when you are physically or mentally unfit
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