Consider jointly developing your home into apartments to earn regular rental incomes.
Susheela, 75, sold her house three years ago when her husband passed away and gave each of her children their share. While the interest income from investments was enough for her initially, it is not enough to take care of her escalating monthly expenses now.
Senior women such as Susheela may not realise the consequences of not planning their finances well. Given their increased life expectancy, the number of senior women in India will exceed men by around two crore by 2050, says a report by the United Nations Population Fund.
At the same time, data from HelpAge India, a non-profit organisation focussed on the rights of the elderly, shows that about 85 per cent of senior women are financially dependent on their children, partially or fully.
To better manage their later years, women must keep in mind a few things.
PAIN OF INFLATION
Consider a senior couple with an estimated monthly living expense of Rs 11,000. Their insurance premiums are likely to be around Rs 2,000 per month. Their outpatient visit and pharmacy expenses, which may not be covered by insurance, may be around Rs 3,000. Note that inflation in general has been high, at around 10 per cent. It is even higher for medical expenses, which are typically a large part of a senior’s expense. Financial planners we talked to estimated that medical costs have been increasing at 1.5 to 2 times the rate of general inflation.
Medical premiums have increased by 15 to 25 per cent in the last few years, according to a report by Tower Watson, a consulting firm.
Assuming the average long term inflation at 7 per cent (based on historic data) and for medical expense 12 per cent (using a 1.7 multiple), the expenses would balloon to over Rs 50,000 a month by the time the couple is 75 years old.
Say, the couple had savings of about Rs 40 lakh and had invested in a fixed deposit that gives 9 per cent interest. They may start to feel the pinch at around 73 years of age as the interest income starts falling short of their expenses. In the absence of regular income such as pension, it is very important that one plans for additional income sources, unlike Susheela.
PROPERTY AS HEDGE
One way some senior citizens are generating additional cash is through the property they own.
Consider the case of Malar whose husband built small apartments in the land he owned, in Pollachi near Coimbatore. He did this by selling some assets and investing a part of his retirement benefits.
She now currently earns regular rent from this investment. In a worst-case scenario, she can choose to sell the units if she finds it difficult to manage them or is in need of cash.
Elderly couples in cities are also choosing to jointly develop their homes into apartments, when they are physically able. This may offer better long term value than an outright sale. Some seniors are also opting to buy a second home that will provide rent and could be bequeathed or sold to increase cash at a later stage.
Senior citizens may also consider reverse mortgaging their home after a few years, if the need arises. Using this option, one can get monthly cash from the bank for a period of 15 years.
This is akin to taking a loan against the property. The seniors can continue to live in the house for their lifetime, even after full payout. The inheritors have the option to pay back the loan or sell the property.
CASHING IN ON GOLD
Besides, gold is an asset which women generally own. Many senior women are likely to hold gold more for its inheritance value, than for any utility. But, in times of need, you can monetise your gold jewels. But remember, selling it for cash is not easy, due to the many restrictions placed by jewellery stores. One may not be able to realise the full value as stores tend to deduct for wastage, purity and flat reduction for cash payment.
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