Want to financially safeguard your kids and parents? Here's the plan

Couples having to take care of both kids and parents should buy adequate insurance and begin investing for long-term goals at earliest

The sandwich generation finds itself in a financial tight spot today, having to cater to the needs and aspirations of the spouse and the kids on the one hand, and ageing and financially dependent parents on the other. Besides trying to augment its income, this generation also needs careful financial planning so that every rupee earned is put to the best possible use.  

While salaries are rising in India, so is inflation. According to the latest Q3 2018 Salary Budget Planning Report released by Willis Towers Watson, salaries in India are projected to rise by 10 per cent in 2019. But if you subtract the inflation rate, the real wage increase projection for India is expected to be about 4.6 per cent. Medical inflation is expected to rise, too. The 2019 Global Medical Trends Survey indicates that this category of inflation will surge by more than 10 per cent in 2019. Here are a few things that the sandwich generation needs to do to tackle the financial tug of war it faces. 

Set financial goals for each family member: If resources are limited, every member should be made aware of it. After sharing the family’s financial situation, the next step is to become a team and work towards attaining financial balance. You can do that by planning your life goals very carefully in consultation with each family member. Says Nisreen Mamaji, CEO, Moneyworks Financial Advisors: “The financial goals for family members should include periodic, short-term as well as long-term goals.”

Make your spouse a part of your financial decision-making and allow her/him to take ownership as well. 

Start investing early: Start planning for your kids’ education as early as possible. Says Nagpur-based financial planner Parag Paranjpe of Think Consultants: “Right from the day the kid is born, start investing for her education.

Let the compounding effect work for you over a span of 12-15 years.” Amid all the financial pulls and pressures that the sandwich generation faces, it is easy to overlook the need to save for retirement. They should not do so. Systematic investment plans (SIP) of equity mutual funds are the best vehicle for achieving this goal. 

Buy adequate health insurance: As parents enter their 60s, it is a good time to reassess their health insurance needs. Says Mamaji: “Those with elderly parents should opt for medical insurance between Rs 10-30 lakh, depending on their previous medical history.” He adds that one can also avail of the government’s insurance schemes for seniors. Buy a separate senior citizens’ cover for the parents instead of including them in the family floater (the cost tends to be higher in the latter option).

Your spouse, kids and dependent siblings (if any) should also be adequately covered. Buy at least a Rs 10 lakh worth of family floater, even if you have an employer’s insurance plan. A health contingency fund may also be set up to provide additional backup and meet costs not covered by health insurance.

The family must also set aside a contingency fund to meet such incidents as loss of income due to unemployment or accident. This should equal six months’ expens of the family (including tuition fee, EMIs and premiums). Invest this money in liquid instruments like sweep-in/sweep-out bank deposits and liquid funds. 

Term insurance for primary earning member: If you are the sole breadwinner of your family, make sure that you have adequate term insurance. Your net worth plus term plan’s sum insured should suffice to meet the family’s goals, pay off liabilities, and replace expenses. If you find it difficult to put a number to this, take a financial advisor’s help, or buy sum assured of around 10 times your annual income. Says Swapnil Kendhe, Nagpur-based Sebi registered investment advisor and founder of VivekTaru: “The primary earning member can buy two term plans. He should name his wife and kids as nominees in the larger one and his dependent parents in the smaller one.” Married women with dependent parents need to appoint them as nominees to be able to take care of them in case of an unfortunate event.

Estate planning is a must: The elders in the family need to take the necessary steps for estate planning. Says Mumbai-based certified financial planner Harsh Roongta: “This requires fostering a culture of financial transparency within the family. Most of the heirs in a family have only a broad idea of the family assets, but they do not know the specifics.” If the parents pass away without making children aware of all the assets they possess, it becomes very difficult for the latter to gain access and control over them. Elderly parents must make a will.

Finally, Paranjpe has this advice for the sandwich generation: “Review your financial plan periodically. If you are falling behind, try to save and invest more.”