I want to help my father in managing his funds as he is nearing retirement. How can I ensure stable income source for him?

I am seeking guidance on financial planning for my parents, specifically my father, who is 57 years old and nearing retirement. He has dedicated himself to hard work throughout his career, and I am eager to ensure that he can experience a relaxing and fulfilling retirement.

Current Assets and Investments:

Land owned by my parents with an estimated value of Rs 2 crore (intended for sale).

Two houses valued at Rs 70-80 lakh collectively.

An LIC policy with an anticipated maturity value of Rs 32.5 lakh.

Mutual funds portfolio valued at approximately Rs 10 lakh.

Additional investments totalling around Rs 5-6 lakh.

Future Plans:

In the coming 2-3 years, we are planning to upgrade to a 3BHK apartment (estimated cost of Rs 1.5 crore) by selling both existing houses.

Currently, my parents lead a modest lifestyle and manage their monthly expenses within Rs 40-50K. However, I aim to provide them with opportunities to explore India and enjoy a more fulfilling retirement.

Our objective is to secure a consistent monthly income of Rs 1 lakh, all while ensuring that the investment corpus grows to combat inflation.

I am seeking guidance on organizing investments, improving asset allocation, and establishing a stable income source for retirement. Any recommendations regarding financial instruments, real estate choices, or tax-efficient tactics would be greatly valued.

Would request you to kindly share your expert opinion for both of them. Thank you.

Advice by Animesh Hardia, Senior Vice President, Quantitative Research at 1 Finance

It's wonderful that you're thinking proactively about your parents' financial well-being as they approach retirement! Planning for a comfortable and fulfilling retirement is a journey best taken with careful consideration and a bit of foresight. Let's walk through the key steps.

First, let's zoom out and consider the bigger picture. Before we get into the nitty-gritty of investments, it's important to understand what a "good" retirement looks like to your parents. Will they want to stay in the same city, close to friends and family, or are they dreaming of a quieter life in a smaller town? Do they envision traveling the world, or are they more interested in pursuing hobbies and spending time with loved ones? Will your father want to keep working part-time to stay active and engaged?

Second, understanding how your parents interact with money is crucial for determining appropriate asset allocation. Are they conservative investors who prioritise safety, or are they comfortable with some market risk? Their answers will greatly influence how we structure their finances.

Now, let's dive into some practical steps, keeping in mind that this is a general overview and a personalised plan is always best:

1. Emergency Fund and Insurance Coverage

Life throws curveballs, so it's essential to have a safety net. An emergency fund of at least ₹10-15 lakh in easy-to-access accounts like fixed deposits or liquid mutual funds can help cover unexpected medical bills or home repairs. Equally important is ensuring they have a comprehensive health insurance plan that covers potential medical expenses as they get older. Think of it as a shield against life's unforeseen events.

2. Planning Real Estate Decisions Thoughtfully

Upgrading to a new apartment can be exciting, but it's crucial to make smart choices. Before selling their current homes, consider all the costs involved in buying a new one—stamp duty, registration fees, and ongoing maintenance expenses. If renting out one of their existing properties is an option, it could provide a steady stream of income without dipping into their savings.

3. Building a Stable Monthly Income Stream

The goal is to create a reliable income stream of Rs 1 lakh per month. This can be achieved through a combination of different strategies. One option is to invest in annuity plans that provide guaranteed income for life, offering stability and peace of mind. Another approach is to set up systematic withdrawals (SWPs) from their mutual fund investments, allowing them to tap into their savings gradually while still potentially benefiting from market growth.

4. Investing Wisely for the Long Term

A well-diversified investment portfolio is crucial for long-term financial security. While it might be tempting to put everything into safe, low-yield investments, it's important to have some exposure to assets that can outpace inflation. Consider allocating a portion of their savings to equity mutual funds, which have the potential for higher returns over time. A small allocation to gold can also serve as a hedge against economic uncertainties.

5. Staying on Track

Retirement planning isn't a one-time event—it's an ongoing process. As your parents' needs and circumstances change, it's important to review and adjust their financial plan accordingly. Regular check-ins with a financial advisor can help ensure they stay on track to achieve their goals.

Remember, the best financial plan is one that is tailored to your parents' unique needs and preferences. By taking the time to understand their goals, values, and financial behaviour, you can help them create a roadmap for a happy and financially secure retirement. While these steps provide a helpful framework, a consultation with a qualified financial advisor can help them create a strategy that's perfectly aligned with their individual circumstances.