Time to Plan For Retirement—Your Parents' Retirement
Do you know what your parents' retirement plan is? What's their financial situation right now? How much will they have saved by the time they retire? Will they continue to work into retirement? Where will they live?
Don't worry, a lot of adult children can't answer these questions. But even if your parents aren't yet retirement age, it's time to start having difficult conversations and getting answers so you can plan ahead—especially if you will play a financial role in their retirement plan.
What's the rush?
Why do we need to think about this now? Well, when the recession hit in 2008, the retirement accounts of many parents of millennials took a hit, said Erin Lowry, financial expert and author of "Broke Millennial: Stop Scraping By and Get Your Financial Life Together." Some have stock portfolios that never recovered from the market crash, and some "borrowed from their future selves," dipping into their retirement savings to pay for big things like college for their children, she said.
As a result, many people in the country have not saved enough for retirement. Today, almost half of U.S. families have zero retirement savings, according to the Economic Policy Institute. For some older adults, their "child is the retirement plan," Lowry said.
Millennials' parents are just now hitting retirement age. Lowry anticipates that many of today's young adults will have to step up and help their parents financially in their post-career years. Isabel Barrow, associate director of financial planning at Edelman Financial Services, said the scenario is already "something that we as financial planners hear more and more about from our clients."
"I foresee in the next five to 10 years, this is when the conversation is really going to be happening," Lowry said.
But that doesn't mean we should be waiting that long to start talking about it. In the eyes of financial professionals, the sooner we can broach the subject, the better.
"A lot of times, children won't really think about it until, 'Oh, it's Mom or Dad's 65th birthday,'" Lowry said. That's "when the child realizes Mom or Dad can't afford to retire."
How to talk about the future
Adult children have been helping their parents in retirement for generations—this is not a new thing. But Lowry thinks discussions about this should be happening sooner. If a parent is hoping a child will help them financially in retirement, they "have an obligation to be forthcoming" about that, she said. But you might have to be the one to start the conversation.
It's an understandably awkward topic to broach for most families—parents don't like to be put in the position of asking for help from their children, and bringing up money can sometimes be misconstrued as a grab for inheritance, said Marcy Keckler, vice president of financial advice strategy for Ameriprise Financial.
Ameriprise's Family Wealth Checkup study showed that 33 percent of adult children had not broached the topic with their parents, fearing that it wasn't their place to bring it up or that the conversation might be uncomfortable or lead to tension. They also didn't like the thought of losing their parents down the road.
But talking about your own savings and plan for retirement is a great way to start a dialogue. You can mention that you read an article about diversifying your retirement accounts, and ask your parents what their strategy has been. Or that you've been thinking about buying a house, and ask them about their experience with home loans.
The holidays might seem like a bad occasion to talk about money, but it's often a time when siblings and parents are gathered together, making it an ideal opportunity to dip your toe in the water, pointed out Kerry Hannon, financial expert and author of many books, including "Great Jobs for Everyone 50+."
"Comment on your own situation and lead it into a discussion about: How often do they look at what they set aside? Or have they started to thinking about where they want to live in retirement?" Hannon said. "I think it's really, really hard to talk about money with our parents. (But) having that money talk is so empowering when you can do it."
The vast majority of adult children and the majority of parents found having this money talk to be more straightforward, comfortable and easy than they anticipated, according to the Ameriprise report.
Sometimes the discussion is easier for the parents when it's with someone they're not related to, like the spouse of their child, Lowry said.
"Parents can get defensive or they're trying to protect their child so they don't want to share the information," she said. "It can be easier for parents to have that tough conversation with someone they love but is not (their) child."
If you have siblings and do plan to have a family conversation about money, let them in on it beforehand. Your siblings can be your allies in divvying up responsibilities, financial or otherwise, as your parents age, Barrow said. Even if you don't feel ready to dive into the money conversation with your parents right now, talking about it privately with your siblings can be a great place to start.
What to know about your parents' plan
How you get the information is up to you, but this is what you should know about your parents' retirement plans, the experts said:
- How much have they saved? Is it enough to live on after retirement?
- If not, do they plan to continue working?
- Is their home paid off?
- Do they have any debt?
- Do they have a will and an executor of the will?
- Do they have long-term care insurance?
There's more to consider—and every family's situation is different—but this is a good place to start.
"It's a lot to think about, and it can feel really overwhelming," Lowry said. "The big thing is figuring out what is covered and what isn't covered, and how you can start filling in those gaps."
And it's best to talk about these things before there's an emergency—medical or financial, the experts said.
Thinking of your future self
Supporting your parents in retirement might look differently for you than for someone else. You might be helping to pay living expenses, or medical bills. Later in life, your parents might need to move in with you, or move into an assisted living facility. Maybe your parents have saved adequately and have a clear plan for their future, and don't anticipate needing any help from you.
Once you have an idea of what your future with your parents might look like, Hannon recommends starting to sock away money in case of an emergency down the road. Even if your parents seem on track financially, you never know when a health issue will arise as they get older, resulting in medical bills you'll have to help out with. After all, you don't want to "rob Peter to pay Paul," hurting your own retirement savings down the road in order to support your parents, said Barrow.
Make sure your retirement savings are healthy so you're not putting your own children in the position you're in by draining your accounts to support your parents. That means starting to save for your own retirement early and aggressively.
"You need to put your own oxygen mask on first," Lowry said.