How to help your retired parents make investments

personal finance

How to help your retired parents make investments


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Financial advisor talking to senior couple at home. FILE PHOTO | NMG

Summary

  • Regarding housing, discuss whether they have a mortgage payment due or intend to take out of their pension payment to build a retirement home or will continue to rent.
  • If you’re one of the kids who commits to working hard until they build a decent house for their parents, then start planning ahead to avoid putting your own finances in jeopardy.
  • Since seniors are often resistant to change, you need to help them carefully manage their post-retirement income with minimal lifestyle change.

Talking about finances in our African homes is never easy. It’s even more difficult when you have to have this conversation with older parents who have always tried their best to give you their best. However, it is necessary when you may need to harvest your resources for your care.

If your parents have been retired for a while and you’ve put off the conversation about financial planning for a while, now is the time. If your parents are about to retire, the sooner the better.

To begin with, prioritize knowing if you have a pension, debt and your housing situation or plans. Regarding housing, discuss whether they have a mortgage payment due or intend to take out of their pension payment to build a retirement home or will continue to rent.

If you’re one of the kids who commits to working hard until they build a decent house for their parents, then start planning ahead to avoid putting your own finances in jeopardy.

Remember that retirement symbolizes a fundamental alteration in both your lifestyle and your investment portfolio. The focus shifts from asset accumulation to how they will live off those assets, possibly for decades.

So, since seniors are often resistant to change, you need to help them carefully manage their post-retirement income with minimal lifestyle change.

This often means creating multiple streams of income. Kenyan retirees are already one step ahead of this. Recent research by Enwealth Financial Services, a leading pension administrator, indicates that more than 57 per cent of retirees in Kenya have additional sources of income to supplement their pension income.

According to research, the most common sources of additional income are rental income, farming, business, and consulting.

When it comes to financial investments, consider a mix of available vehicles. The risk of your savings outliving (longevity risk) or your portfolio losing market value (market risk) should be at the top of this conversation.

Since retirement can last more than 30 years, retirees still need some growth-oriented investments to keep up with inflation and the rising cost of living in retirement to ensure they don’t run out of money.

Be careful because others may actively avoid a discussion that forces them to even think about mortality. For example, experts recommend shorting stocks and leaning toward government bonds to control volatility. If you’re 65, your portfolio’s allocation to stocks shouldn’t exceed 35 percent, which is 100 percent minus your age (65).

However, since financial matters can become complex and present a variety of potential problems, it may be worth calling in an expert as soon as possible. They could be a certified financial advisor or retirement planner to help adjust investments to strike a balance between growth and preservation of capital.

Proper post-retirement financial planning should be subject to review every three years. Help your seniors with such reviews, research the best investment managers and keep them on appointments as needed.

When approaching investments for retired parents, it is equally essential that they are covered by adequate health insurance. Post-retirement health coverage is now readily available, but since some insurance companies tend to be more cautious about chronic illness at this age, help your parents research the details of their coverage limits.

Having health insurance can significantly preserve your investments, as they mostly remain intact in unforeseen medical emergencies.

That said, it’s about more than just the penny. It’s about providing the best possible life for the people who raised you. If (and when) your parents are financially fit, being available, kind, understanding, and emotionally supportive cannot be translated into dollar bills.

Also, take the opportunity to discuss your own finances with your children and explain where you have put your money and why. It will strengthen your ability to manage your money and yours when the time comes.

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