Emotional Insurance

"The most terrible poverty is loneliness, and feeling of being unloved." - Mother Teresa

It’s worrying that tally of aging citizens lending up in old age homes are on the rise. What kinds of insurance policies can we offer to the elderly people who need our time, who need our compassion and love, and who need our togetherness? Don’t they deserve these? Can our financial planning throw any solution?

We have insurance to cover the economic losses due to accident, sickness, old age, theft, partial & permanent disability and what not. But how can we ensure our time for our elderly parents? Honestly we do not have any mechanism to INSURE our time for our ageing parents in home at a far away place. Its not that children do not care for ageing members but the nature of today’s economic activities force them to work afar from them and their native town. Many children diligently send money to their parents and try to cater their needs remotely. So, children should not be blamed alone for the plight of their ageing parents. Then on whom the responsibility should be fixed?

Last week I had been to an old age home about 30km away from my town. Unlike old age homes in cities this one was set in solitary place on a rural backdrop. At the entrance there was a kitchen garden, also there were plenty of trees inside and outside the premises boundary that enhancing the serenity of the place. The old age home was run by a semi-literate farmer with help from few generous people of adjacent villages & dropped in by passers. The shelter building capacitated about 15-20 inmates.  Most of them were poor. Like in a short story book each one had a different tale to tell.  Their stories were very emotional and heart rendering.

Broadly on three issues the inmates of the shelter were struggling –i.e. economic, physical (health & infrastructure) & emotional. For first two issues we have answers. Pension & annuity plans, donation, corpus fund, government’s financial assistance, reverse mortgage etc. could be few solutions to our first issue. Similarly old age home, senior citizen home, hospice, health insurance etc. could be few replies to the second issue.

Perhaps the emotional issue is most difficult one to resolve. From the interaction with the inmates it was eminent that elderly parents missed their children despite they care or not. So what could be done when aging parents want their children’s time and company? There is no answer to parents whose children have dumped & discarded them. They have to seek emotional solace from outside.

Other categories of children are those who send money and honestly want their elderly with them. But the constraint with the aging parents is that they do not want to leave their native place and accompany their children to a more isolated unknown society. On the other hand for the children there is no option to return back to their parent due to nature of economic activities they pursue & lack of financial security at home.

For such children there is no immediate answer, but with little bit of planning and attitudinal change things can be resolved. To me the eminent prescription to such dutiful children is EARLY RETIREMENT, i.e. retiring in between 45 to 50 years. But how that could be achieved?

What are things we need to do for an early retirement:-

1.       Total life insurance sum assured of retiring members need to be at least 10-12 times of total annual house hold income at the time of early retirement. Preferably they should have Term policies because it cost less and surplus could be used for investment purpose.

2.       Adequate health insurance is a must for all the members particularly of the aging parents.

3.       Diligently estimate the probable expenses of the family including the aging parents with whom you want to live.

4.       The vital factor is to generate sources of cash flow to fund your early retirement.

Let’s elaborate the last factor and most important factor a little. For early retirement one need a large corpus so that income generated form it funds your retirement. Few important things listed below could help someone to build a good enough corpus.

• Be an early investor. For example an investment growing @9% get doubled in 8 years, tripled 12.75 years, quadrupled in 16.1 years, five times 18.68 years, 10 times in 26.72 years. This is what the power of compounding or magic of compounding. On other way say someone invested Rs.1 lakh @9%p.a. when was 25 years old will get Rs.8.62 lakh when he becomes 50 years, and someone started late by 5 year invested Rs.1 lakh at 30 will get Rs.5.6 when he becomes 50 years old. An investment decision taken 5 year late makes someone poorer by Rs.3.01 lakhs when the rate of return is 9%pa. The margin becomes more wide once the rate of return is high.
• Invest in equity indirectly through diversified mutual fund or Index fund. Better option to accumulate & generate wealth is through SIP. One can note that since inception NIFTY50 & BSE Sensex indexes have delivered return over 15% CAGR.
• Gradually built income generating assets, i.e. a portfolio of stocks paying historically a consistently growing of dividend; rent paying houses etc. It has been observed that dividend income and rent income have historically outpaced inflation.
• One must keep of note of all expenses on daily basis. This enables us to curtail unnecessary expenses and help us to increase allocation for investment. This habit is a great tool for saving.

Besides all the above for early retirement the most needed factor is our attitude to accommodate our parent at time of their need. Further we must learn to draw a line between “what is necessary” and “what is luxury”, or else we will spend our precious life only chasing wealth. Be aware the line is very thin.  

So the impression of early retirement as an Emotional Insurance is quite possible. The advantages are that besides being with your parents when they needed you most, an early retirement gives you ample of time to pursue your personal interests. Further its gives you plenty opportunities to pay back to your society which is a must. Personally for me creation of wealth is important but more important is distribution of wealth in a productive way for a better society.

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