Abhijit Mitra, Outlook Money
MUMBAI (Outlook Money), February 1, 2008:
Naval architect Jayanta Roy, 44, lives with his family in their Kolkata home. There's wife Rupa, 39, son Deepro, 10, and parents, Kalyan Kumar, 65, and Kana, 65. In October 2007, Kalyan had to be hospitalised with respiratory trouble. Since he has no medical insurance, Jayanta had to pay the Rs 20,000 for his treatment. But the Rs 1,000 or so worth of medicines Kalyan and his wife need each month is paid for from his pension of Rs 8,500.
While Jayanta is financially vulnerable to his parents' medical emergencies, at an emotional level he and his parents are glad that he can help during their moments of need. But life is never that simple. Jayanta's own financial needs are swelling. He has to pay home loan EMIs of Rs 17,000 for 14 more years, and Deepro's education costs are looming. He doubts that he is prepared to be, 25 years later, where his father is today.
ndia's emerging 'Sandwich Generation'. Jayanta is part of India's emerging 'sandwich generation'. It comprises, says the Merriam-Webster Dictionary, people caring for their ageing parents and supporting their own children. The term is a US coinage of the Seventies that gained enough currency to be included in the dictionary. People have dealt with being sandwiched for generations, but with the social structure changing this set is facing new challenges and must prepare for it differently.
What's Creating the Sandwich Generation?
Rise of nuclear families. Based on Census of India data, Bert N. Adams and Jan Trost, in Handbook of World Families, say the percentage of Indian households that are joint families has declined from 20 per cent in 1981 to about 18.50 per cent in 2001. Simultaneously, the percentage of nuclear families has risen from 68.10 per cent to 70.40 per cent. In other words, more and more Indian adults are staying away from their parents. In many cases, that's limiting their concern to those that they live with.
Increased job mobility. Helping the creation of nuclear families is work-related mobility, which has increased over the same period and continues to do so. Experts say that people joining the workforce today will end their careers after having been in as many as 15 jobs, not all of them in one place. This, along with increasing urbanisation and industrialisation of India, traditionally a catalyst for growth of nuclear families, is breaking up the joint family system.
Increasing longevity. Meanwhile, Indians are living longer than before. Today, an urban Indian can expect to live till the age of 80, perhaps more, longer than the 60-plus years that his father could, and will need a much bigger corpus to see him through retirement. Unlike many other countries, India doesn't have old-age doles that provide baseline retirement income and public healthcare systems that provide subsidised healthcare. Clearly, among the urban Indian middle class, the children will have to eventually take up the role of providing financial and other support, despite the changing family structures.
Different folks, different strokes. The impact on the members of the 'sandwich generation' manifests itself in different ways. Take the case of Delhi-based Saikat Roy Chowdhury, 37, a manager at a trade event firm. In his case, it is not money but caregiving that is the foremost issue, something that is exacerbated by the fact that he and his aged parents stay in different cities.
Saikat lives with his HR consultant wife, Shinjini, 36, and son, Soham, 6. This limits the extent to which he can take care of his parents Soumen, 73, and Shila, 62, who live in Kolkata. The fact that his father is strongly independent does not make the task any easier. 'We are fine; you need to look after yourself and your family' often ends any effective conversation even before it can start.
His parents' support system is in people of their age. Minor illnesses are often attributed to 'advancing years' and ignored. Saikat worries. It will be a good four hours before he can reach home if there's a contingency.
"Today, parents want to be independent; they do not want to live off their children's earnings," says Mumbai-based Gautam Nayak, partner at chartered accountancy firm Contractor, Nayak & Kishnadwala, who, among other things, handles legacy and money management matters for a number of elderly clients. He adds, however, that many of them do need people to do their running around for them.
Like Saikat and Jayanta, an overwhelmingly large number of the urban mass affluent Indians around 40 are at a stage where the responsibility of the parent is getting added to those of their children. The umbilical cord remains intact, even across geographical distances.
Financial help aside, those who live together, or in the same city provide the care that physical proximity makes possible. Others, with parents in different cities, worry.
There's also the delicate task of caregiving without treading on the toes of dignity and self-respect. Add to this the pressure of preparing for the kids' higher education and the final frontier of their own silver years. The feeling of being weighed down with responsibility often overtakes the joy of family life.
Take the case of Puneet Arora, 34. A graphic designer, he would like to move to Bangalore to better work prospects. He lives with his parents, Pratap, 65, and Neera, 60, sister Ira, 31, wife Nikita, 31, and daughter Jaya, 4, in the family house in Delhi.
If he moves, the emotional and caregiving support structure of his parents will be substantially weakened, what with his sister about to get married. There is a sense of insecurity that will set in once the house becomes empty. Nikita, who flies with an airline, is out of station from time to time. With parents around, Jaya is in good company. Puneet hasn't yet been able to find a solution that will take the headache out of his move.
While each family will find its own rhythm, we can ease the pressure a bit by suggesting ways to negotiate this busy phase of your life. We present financial planning strategies that take care of the parents, the kids and your own money needs. And maybe the sandwich will not get grilled!
Managing Your Parents' Finances
Create a cushion for medical expenses. Healthcare costs are rising rapidly. Aging parents with fixed old-age incomes find it difficult to cope and often see their living standards plummeting. The children, too, may find it difficult to pitch in. More so for people like Malini Gupta, 40, an advisor at the gender desk at an NGO in Delhi, a single mother with two daughters, Akshara, 11, and Akhila, 6.
Apart from looking after her daughters, she has to meet half the expenses in her parents' household, where she now stays. Evidence of her vulnerability came in when her father, Dipankar, 71, had to undergo complex heart surgery in June 2006 at a private hospital. The total cost: Rs 600,000. Since he did not have medical insurance, after drawing out her father's available cash, Malini and her sister had to chip in with the rest, even borrowing to cover the last bit.
Fortunately, her employee health benefit covers her parents as well as her daughters. She could get most of the costs reimbursed.
Not everybody can. So, experts recommend adequate health covers for ageing parents. "It helps you manage the risk of unforeseen and substantial lump sum expenses without jeopardising the rest of your finances," says Swami Saran Sharma, a tax and risk management expert. It makes sense to buy health insurance for yourself too, he adds.
You can also include your parents in your medical policy and avail a deduction of up to Rs 15,000 under Section 80D. If your parents are senior citizen taxpayers, you could gift them up to Rs 20,000 a year and they will get a tax break if they pay their health insurance premium. This cuts the household's tax outgo. Now, special health covers are available for the elderly along with the regular covers.
Create an effective support system. Parents might require funds to supplement their retirement funds or they may simply need logistical support to manage their finances, especially if they live in another city. Sometimes, relocation of either the parents or children is the best way out.
Shubhomoy Ray, 37, lives in Delhi with his wife and 2-year-old son, and has another child on the way. About a year ago, he quit his job and started his own consultancy company with two partners. His brother Shantomoy, 34, who runs an advertising agency, too, lives in the same city with his wife and 3-year-old daughter. A few months ago, they shifted their parents from Kolkata to Delhi.
Their father, Debatosh, 66, was living in his house in Kolkata after retirement, but was spending a lot of time in Delhi. Besides the problem of looking after the house when they were away, there was the issue of having someone at hand in case of an emergency.
(For clearer view, see orginal through link given below). So, the brothers got into the act. Shantomoy located a suitable house near theirs in Delhi and the two brothers chipped in with the payment since the money released from the sale of the Kolkata property was falling a little short. While Debatosh has some investments, they will be some time maturing. Shubhomoy says: “My parents owned a house. So, they did not want to move into rented accommodation.” He adds that he is more at peace now that they are here. “While they have a life of their own, they visit us often and can use our infrastructure when they need to,” he says. While financial help is not directly extended, such a measure helps in making some expenses, such as on owning and running a car, unnecessary. Besides, Debatosh can always bank on his sons to do some running around.
Become your parents’ fund manager. Sometimes you need to play a more active role in the managing the retirement funds of your parents. Nayak says that if parents are too old or infirm to manage their own money, you may need to get a power of attorney to do so. He suggests that all accounts be held jointly.
Mumbai-based Shinjini Kumar, 40, compliance head at a foreign bank, lives with her husband, Ashwini, 45, an academic, and sons Shantanu, 12, and Rishabh, 6. While Ashwini’s parents are no more, Shinjini’s retired father, Vijay Kumar Sinha, 62, and mother, Janaki, 60, live in Dhanbad.
For Shinjini and her brother, a senior income tax official in Ludhiana, the call to help their parents came early post-retirement. Together, they worked out how to invest their parents’ retirement corpus. They have bought health insurance, worked out an investment plan so that the returns meet the couple’s expenses. They have also put a part of the money in liquid funds that can be withdrawn at short notice should the need arise. Now Shinjini is trying to get private banking facilities for her father so that he does not have to keep running to the bank.
Talk about money. One of the biggest hurdles to discussing money with parents is broaching the topic. Most parents, having spent their lives on their own incomes, are loath to turn to children for financial support. In such a situation, says Nayak, it could help to get a third-party into the picture, a close family friend or relative. Or, even a lawyer who the parents will trust. If there are property issues involved, such a person also helps ease the suspicion that one of the children is trying to deprive the others. The parent, too, is likely to open out more easily since he is buying the service. However, there is no substitute to keeping healthy conversation going within the family.
Making parents’ retirement funds stretch. For children becoming their parents’ fund managers, the major challenge would be making the retirement funds suffice over the parents’ lifetime. This is a formidable challenge, as most ageing parents didn’t save for a long retired life. Add to this the fact that most 60-plus people are living on small pensions and corpuses of the pre-boom India. But, above all, the extreme averseness to growth options like stocks or equity mutual funds means that their corpus will eventually get pulverised by inflation. Here’s what you need to make your parents’ funds stretch.
Keep adequate emergency funds. Ensure adequate liquidity in parents’ finances so as to meet emergencies, often health-related. Depending on the needs, 9-12 months of living expenses can be stashed away. Since the need for cash is immediate, investments for emergency funds need to be accessible at a very short notice, with consideration of returns being secondary. Bank fixed deposits and two-in-one savings accounts often fit the bill nicely with some amount always lying in low-paying savings account. Ensure low-risk regular income. For regular income, you can pick from annuities or interest from a number of instruments (see Creating Parents’ Regular Income). A Senior Citizens’ Savings Scheme (SCSS), which pays the highest risk-free return of 9 per cent (payable quarterly) and Section 80C benefits, can create the baseline income for five years. You also have the option of going for the six-year, 8 per cent per annum post office MIS. Then there is the immediate annuity from life insurance companies that give regular income for a lifetime after a lump sum, typically earned from some pension plan, is invested.
A way of augmenting your parents’ retirement funds is to put a lump sum in an immediate annuity pension plan and make the annuity payable to your parents. Or, like Malini and her sister, you, too, can contribute to a joint bank account with your parents so that they can get cash without having to ask for it.
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