What If Your Parents Are Not Able to Retire
- October 2, 2020
- by Michael
Studies have shown that a third of boomers and seniors have no retirement savings, and only 16% have more than $10,000 set aside for retirement. These statistics can be staggering and may warrant a conversation with your parents to help them be financially ready for retirement.
However, this conversation can be difficult for everyone involved. Read on to discover how to start the conversation and help get your parents to the best position possible as they enter their golden years.
Start the Conversation
The first step to helping your parents is to understand where their finances are now. There’s a chance that your parents are in the minority of people that have money set aside to retire and that they are in good shape. If your parents are not financially stable, they may be defensive about the conversation. So, be sure to tread carefully as you open this dialogue.
It may be wise to start the conversation with an offer to help. They may want to keep their finances private, but you can help them understand that part of your future financial success is rooted in their financial independence. They can help you by giving you an understanding of what you might be responsible for in the future, and you can help them by offering to help them create a budget or retirement plan together. Here is a list of questions you can consider bringing up with them.
Get Everyone on Board
If you have siblings or other people in your family that are financially tied to your parents, you may want to engage them in the initial conversation or financial plan. Your siblings might have additional financial perspectives or advice that they can offer, and it will provide additional people for accountability.
You should anticipate that you might get mixed reviews from your siblings on how you should approach the conversation with your parents. It’s likely that you and your siblings learned your basic financial knowledge from your parents and may be carrying some baggage as a result. Be sure that everyone feels heard and respected and that everyone understands that the purpose is to ultimately help your parents.
Additionally, be sure that your parents are on board before moving forward. Their buy-in is the most important as they will have the final say in the financial plan, budget, and other decisions.
Understand the Financial Landscape
Now that you’ve had the conversation and the necessary individuals are invested in moving forward, it’s time to ensure that you and your parents have a complete view of their financial situation. This might also be a good time to engage a financial advisor.
Some things that you will want to ask your parents are:
- Do you have a 401k, ROTH IRA, pension, or other retirement savings account?
- How much do you owe on your home, credit cards, and other debts?
- What properties and large items do you own?
- What is your income and how long do you plan to collect your income?
- Do you have any other investments?
- When do you plan to collect social security?
It’s also wise to understand what their financial goals are so that you can create a plan for how to grow their net worth.
Create a Plan
Once you have all the information that you need, you can create a plan together. Here are a few things that you should consider when planning to help your parents achieve their retirement goals.
Attack Large Debt and Cut Expenses First
If your parents are making payments that have very high interest or are on unnecessary expenses, consider cutting those first. For example, if your parents have a large credit card balance that they are trying to pay off, help them to pay it off as quickly as possible.
Additionally, if they have several debts that they have trouble making payments on, it might be time to cut some costs or sell some of their assets. For example, let’s say your parents purchased a lake house a few years ago. Perhaps, they have a boat that they are still making payments on and pay other people to maintain the home and lawn. It might be time to consider eliminating this additional debt or at least selling the boat to eliminate the large payments. They can then reallocate the money they are spending each month to their retirement.
If your parents live in a large home, it may be time to consider downsizing or moving to a less expensive area. Some people choose to have their parents move in with them in their later years to help them cut expenses as well. Regardless of how your family chooses to help your parents eliminate expenses, they should use the money they save each month to invest in their retirement.
Consider Long-Term Care Insurance
Even if your parents are in good health now, there’s no way to tell the future. Healthcare expenses can debilitate a family and long-term care insurance can help to alleviate the risk of taking on huge medical bills later.
Long-term care insurance helps to cover the cost of nursing homes, assisted living, or in-home care should your parents ever need it. Long-term care can cost thousands of dollars a week, and the insurance typically costs a few hundred dollars a month. While this may seem like a large expense now, it can pay dividends in the amount you and your family save in the future.
Know Where Every Penny Goes
Your parents should create a budget and stick to it as they approach retirement. Everyone budgets differently, and your parents may not have had a budget leading up to this retirement plan. Anticipate that it can be difficult for them to adjust to. However, by reviewing income and expenses each week and month can help everyone involved understand where their money is going and how it will benefit them in retirement.
Continue to Save for Your Retirement
By helping your parents prepare for retirement, it decreases the chances that they will have to lean on you financially, thus helping you to protect your retirement funds. However, you should practice what you preach and continue to invest in your retirement goals.
You must break the bad habit of not saving for retirement and invest in yourself. You may see how difficult it is to invest in retirement later in life and be compelled to increase the amount that you invest in your own retirement. You should consider working with a financial advisor early on to ensure that your investments are being maximized during your working years.
The Bottom Line
Compounding interest and time are on your side if you start investing in retirement early on. However, if your parents do not have time on their side, there are still many things that you can do to help them have a successful retirement. By having an honest conversation, understanding what is important to them, and holding them accountable, you can help them to achieve their retirement dreams.