How can you assist your retiring parents with their investments?

As retirement comes closer, confusion and perplexity start clouding our minds. This is particularly evident in our retiring parents, who are generally slightly behind in finances and post-retirement plans. You may fear that this lack of knowledge may prevent them from making informed choices to lead a stable and peaceful life post-retirement. At times like these, you must step up and assist your retiring parents with their investments. In this blog, we will address factors in retirement planning and effective ways to assist your retiring parents with their investments. Read till the end to help your retiring parents secure their future.

Factors to consider while assisting your retiring parents with their investments

1. Have a conversation with your parents about their financial status

The first step in planning for your parent's retirement would be to talk about their finances, keeping the awkwardness aside openly. This way, you'll understand how much your parents have saved and invested over the years, and if they have debt. This will help you make an informed decision about your parent's retirement.

2. Determining retirement goals

Once a clear and comfortable channel of communication is established between you and your parents regarding their finances, the next step would be to determine what your parents’ retirement goals are, i.e. what they wish to do after retirement, and what amount they need to save to fulfill those goals.

3. Planning taxes

Find ways to increase savings for your retiring parents and avail benefits of government schemes to save taxes. It would be better if savings were started as early as possible. Various government schemes allow you to save taxes and increase your savings for retirement. For instance,

• 1. Under the old tax regime, Section 80CCC and Section 80CCD(1B) of the Income Tax Act allow your parents to avail tax deductions up to ₹1.5 Lakh + 50,000; these are not available under the new regime, which is now the default. If your parents invest in NPS, Section 80CCD(1B) of the Income Tax Act covers the additional deduction of ₹50,000.
• 2. Section 10(10D) of the Income Tax Act states that investment in Life Insurance is eligible for a tax exemption of ₹1.5 lakh.
• 3. A tax exemption of ₹1.5 lakh is permissible via Section 80C if the investment is made by your parents to ELSS.
• 4. Under Section 80C, investment in Public Provident Fund or PPF is eligible for a tax exemption up to ₹1.5 lakh. Under Section 10 of the Income Tax Act, interest and maturity are relaxed from tax.

4. Avoid delays

The earlier you start planning for your parent's retirement, the more benefits your parents can reap.

5 Effective ways to assist your retiring parents with their investment

1. NPS- National Pension Scheme

Think of the National Pension Scheme or NPS as a savings plan for your parents' retirement. It helps in keeping aside their money now so they can have a comfortable life later when they stop working, or when they feel financially dependent. It's like planting seeds for a fruitful harvest when they retire.

2. SCSS- Senior Citizens Savings Scheme

One of the most effective ways to assist your retiring parents with their investment is to make the best use of the gratuity corpus by investing in SCSS. It is beneficial for retiring parents as it yields a quarterly payout of ₹27,750. Currently, the option of SCSS is offering an interest rate of 7.4%. SCSS investments are eligible for tax deductions under Section 80C of the Income Tax Act, of 1961.

3. Equity Exposure Adjustment

For an individual, the total equity allocation must not exceed 20-30% after retirement. Hence, adjusting the equity allocation as per standard measures is essential.

4. PPF- Public Provident Fund

In your parents’ retirement planning, you must look into whether they have a maturing PPF account after 15 years. If yes, it would mean extending the investment in blocks of 5 years if they don’t require the funds. Through this, your parents can continue the account and earn interest. Under Section 80C of the Income Tax Act, investment in the Public Provident Fund is eligible for a tax exemption up to ₹1.5 lakh. Under Section 10 of the Income Tax Act, interest and maturity are relaxed from tax. The lock-in period of the PPF account is 15 years. The amount received on maturity is also tax-free.

5. SWP- Systematic Withdrawal Plan

If your parents choose SWP in their Mutual Funds Investment, they will receive a fixed payout monthly or quarterly, leading to additional income generation.

6. Investment in tax-saving options

To reduce the tax liabilities of your parents, suggest tax-saving options like some of the following listed below-

• 1. Section 80CCC and Section 80CCD(1B) of the Income Tax Act 1961 allow you to avail of tax deductions up to ₹1.5 Lakh + 50,000 under the old tax regime (not under the default new regime). These deductions can be availed through investments in certain specified programs, like NPS. Also, if your parents invest in NPS, Section 80CCD(1B) of the Income Tax Act covers the additional deduction of ₹50,000.
• 2. Section 10(10D) of the Income Tax Act states that investment in Life Insurance is eligible for a tax exemption of ₹1.5 lakh.
• 3. A tax exemption of ₹1.5 lakh is permissible via Section 80C if an investment is made by your parents to ELSS.

Retirement is a challenging time, especially for our parents. A thorough retirement planning is essential in today's economy. Luckily, PensionBox is here to assist you with your parents’ retirement planning and securing a financially stable future!