With an increasing number of Indians heading to foreign universities for higher education, and many more making a beeline for overseas jobs, the phenomenon of ageing parents whose children have settled overseas has become quite common. Such senior citizens need to plan their finances in a slightly different manner from those whose children reside within the country.
According to data from the Ministry of External Affairs, an estimated 1.31 crore Indians reside outside the country. At one out of every 100 people, this is a large number. The percentage would be higher in urban India. If one were to include Persons of Indian Origin (PIOs), the number shoots up to 3.1 crore. Let us look at the major expenses such people need to plan for.
Travel: After retirement, travelling to meet the children who have settled abroad becomes an annual ritual. By planning smartly and purchasing tickets in advance, couples can reduce this cost to some extent.
Let’s take the example of a couple that has two kids— one settled in the United States and the other in United Kingdom. The couple travels to both countries once a year. Flight fares, visa and local transportation are the significant costs. They are not likely to incur much on accommodation and food as they would mostly stay and travel with the kids.
A round trip to the UK for two persons would cost around Rs 1,40,000 (average figure). Similarly, a round trip to the USA would cost about Rs 1,80,000. Thus, the couple would have to spend around Rs 3.2–3.5 lakh annually on travel.
Health care: While all senior citizens need to plan for health care-related expenses, in case of people who travel abroad once or twice each year, the planning for this expense needs to be of a different order altogether. When people in their late fifties and above visit their children abroad, they face a multitude of health-related challenges. The weather in most of Europe, the US and Canada is colder than what most Indians are accustomed to. Weather and an altered diet often take a toll on visitors.
Health care costs in the US are among the highest in the world. A visit to a physician in the US costs $175 on an average. A seven-day stay at a hospital means being saddled with a bill of around $16,000. A bypass surgery can cost as much as $73,000. The only way elderly couples can take care of this expense is by purchasing adequate travel insurance, which covers health care expenses. A travel cover with a sum insured of $500,000 for a couple going on a one-month trip to the US would cost Rs 7,100-12,300. In addition, having a separate health care corpus after retirement is a must.
Gifting and financial support: When travelling abroad to meet one’s family, carrying gifts becomes a must. Many Indians believe gold ornaments are the right gifts for children on special occasions. With gold trading at around Rs 38,000 per 10 grams, even simple gold ornaments can cost a lot. Parents need to plan and invest systematically even for such expenses.
While most parents do bear the expenses while their children are studying abroad, sometimes the latter do not get a good job even after completing their education. In that case, support may have to be extended for a longer period—until the child finds a good job and can support herself. Thus, parents sending their kids abroad also need to have some buffer to support them over and above the education fees.
The right financial plan
Reduce real estate holdings: Parents whose children have settled outside India should gradually reduce their fixed assets in the country. Such assets, especially real estate, are hard to manage from overseas. Such parents should also avoid additional investments in real estate, especially given the current state of this market. According to a PropEquity report, around $47 billion worth of projects is languishing at various stages of completion. Considering the high levels of unsold inventory that prevails today, selling a piece of land, house or apartment can be quite a task. Rentals yields are low. Maintenance costs and fees to property managers will further erode the net rental returns. If the children live overseas, there is the added risk of illegal occupation of the property.
Other fixed assets such as automobiles, artworks and antiques may also have to disposed of gradually as ageing parents begin to spend more time with their children abroad.
Invest in financial assets: Investing in sound financial assets is a must to meet travel, health care and other expenses.
Parents whose children are settled abroad could have expenses in hard foreign currencies like the dollar and the pound. Over the years, the rupee has been depreciating steadily against these currencies. This trend is not likely to change over the medium or the long term.
To counter currency risk, the parents could invest a part of their savings in the equity or debt market of the country where the family is settled. They could also create an investment corpus in dollars. About 20 per cent or more of such a couple’s corpus could be invested in international mutual funds available in India as a way of hedging against the risk of currency depreciation.
Systematic investing in equity mutual funds is an excellent way to achieve the corpus required for travelling abroad at regular intervals. Parents should do goal-based investing to meet specific expenses like travel, health care, children’s education and support, etc. Once the corpus required for a particular goal is achieved and the goal is near, that corpus should be switched out of equities and into liquid funds or savings accounts. After retirement, parents could opt for Systematic Withdrawal Plans (SWP) to ensure regular inflow of money.
The writer is CEO & co-founder, Upwardly.in