Personal Finance

How to help your retiring parents make investments


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

Discussing finances in our African households is never easy. It is even harder when you have to have this conversation with ageing parents who have always strived to give you the best. However, it is necessary when you may need to harvest your resources for their care.

If your parents have been retired for a while and you have been putting off the financial planning conversation for a while, the time is now. If your parents are just nearing retirement, better sooner than later.

For starters, prioritise finding out if they have a pension, debt and their housing situation or plans. On housing, discuss whether they have pending mortgage payment or they intend to draw from their pension payout to build a retirement home or they will continue to rent.

If you are one of the children who vow to toil until they build their parents a decent home, then start planning early to avoid jeopardising your own finances.

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

Thus, since old folks are often resistant to change, you need to help them with careful management of post-retirement income with minimal lifestyle change.

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

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

When it comes to financial investments, consider a mix of the vehicles available. The risk that they might outlive their savings (longevity risk) or that their portfolio loses market value (market risk) should spearhead this talk.

With retirement potentially lasting for upward of 30 years, retirees still need some growth-oriented investments to keep up with inflation and the rising cost of retirement living to make sure they don't run out of money.

Tread carefully because others may actively avoid a discussion that forces them to even think about mortality. For instance, experts recommend cutting back on stocks and leaning towards government bonds to manage volatility. If one is 65 years old, their portfolio allocation to equities should not exceed 35 per cent which is 100 per cent minus their age (65).

However, as financial matters can get complex and come with a range of potential hitches, it may be worthwhile to call in an expert sooner than later. They could be a certified financial advisor or retirement planner to help in adjusting investments to strike a balance between growth and capital preservation.

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

While tackling retiree parents’ investments, it is equally essential that they are covered by adequate medical insurance. Post-retirement medical covers are now easily accessible but since some insurance companies tend to be more cautious of chronic illnesses at this age, help your parents in researching on the nitty-gritties of the limits of their cover.

Being medically insured can significantly preserve their investments as they mostly remain untouched 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 that raised you. If (and when) your folks 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 explaining to them where you have put your money and why. You will strengthen their ability to handle their monies and yours when the time comes.