Do Your Parents Know How to Plan Retirement?
Tags: Planning, Retirement, 401k

Do Your Parents Know How to Plan Retirement?

My parents were self-employed. And, growing up, I had always assumed that they making the right financial decisions. As I got older, it dawned on me that they weren’t.

After a series of financial setbacks, they were forced to sell off some business assets. But, more detrimental, they began living paycheck to paycheck just to make ends meet. Clearly, that meant they weren’t able to save for their retirement.

It turns out, that my parents weren’t an anomaly. In fact, according to Pew Research, roughly “13 percent of self-employed workers in single-person firms reported participating in retirement plans at their current jobs, compared to almost three-quarters of traditional workers.”

But, this just isn’t a problem for the self-employed. It’s a crisis that most Americans are facing. The Fed’s 2018 Report on the Economic Well-Being of U.S. Households found that 25% of U.S. adults have no retirement savings. And, only 36% percent of non-retired adults believe that their retirement savings are on track.

So, if you haven’t asked yet, it’s time to ask your parents if they have a plan for their retirement? The sooner you find out, the sooner you can rectify this problem so that they can actually enjoy their Golden Years without being a burden on the rest of your family.

Your parents probably aren’t prepared.

No disrespect. But, a lot of our parents aren’t prepared for retirement. I’d even go out on a limb and say that they don’t even know how to make a retirement plan.

Why would I make such an assumption? Well, data from Northwestern Mutual’s 2019 Planning & Progress Study shows that 56% of American adults don’t know how much they’ll need to retire. But, to fair, that’s not completely their fault.

“For the retirement generation before, there were defined-benefit plans such as a pension,” said Edward Gottfried, group product manager at Betterment for Business. “This is the first generation where 401(k)s could make the bulk of retirement savings.”

Don’t bank on Social Security.

What’s more, Social Security is expected to be depleted by 2035. Even if they are able to receive Social Security Payments, they still fall short.

“One of the big issues with Social Security is that it only provides a similar standard of living for those in the lowest quartile of income earners in the U.S.,” says Mark Hebner, founder and president of Index Fund Advisors Inc., and author of Index Funds: The 12-Step Recovery Program for Active Investors. “In other words, unless your household is earning less than $30,000 a year, most people will need to rely on some sort of personal savings in order to maintain their current standard of living in retirement.”

But, therein lies another problem. Americans are behind on savings. A 2017 report from the Government Accountability Office (GAO) reports that the average retirement savings for those between age 55 and 64 were $107,00 — that would be a $310 monthly payment if invested in an inflation-protected annuity.

As if that weren’t enough, medicare will not cover assisted living. In fact, it will take care of only 100 days. After that, the senior is on the hook — which was a median $4,051 a month in 2019.

That’s a lot of information I just tossed your way. But, the fact is, many of us just aren’t aware of how bleak the retirement outlook is. If you’re aware of this, then your parents can start taking steps in developing a retirement plan.

Don’t assume, just ask.

“Before you assume, learn the facts. Before you judge, understand why, before you hurt someone, feel. Before you speak, think. Those who judge will never understand, and those who understand will never judge.”

I dig that quote. It’s served me well in maintaining healthy relationships. It’s also apropos when it comes to your parents and their financial future.

What I mean is that just because there’s a retirement crisis doesn’t mean that it applies to your folks. But, the only way you’ll truly know is if you just ask them.

Naturally, this is an awkward and uncomfortable conversation. However, it’s one that you’re going to inevitably have to initiate.

“It can happen naturally. As naturally as premeditated can be,” said Cameron Huddleston, who wrote the book “Mom and Dad, We Need to Talk.” It can even be as simple as just asking them outright, “Mom and Dad: What does retirement look like for you?”

One way to do make this happen would be if you’re visiting them for a weekly dinner. You could mention how you’re planning your retirement to steer the discussion in this direction. Just remember to not come across as overbearing or judgemental.

What questions should you ask?

However, it’s often best to plan this talk in advance so that you can ask the right questions. Wells Fargo has a list of the following questions that you might want your parents to answer:

What are your plans for retirement? Are you confident you are on the right path?

What are your planned sources of retirement income?

Do you have any sources of debt? If so, what are they?

What type of insurance coverage do you have (life, long-term care, Medicare)?

If you were unable to live in your current location, where would you want to go?

Have you considered if you could maintain a household alone if necessary?

Are you now working with an investment planning professional?

You should also meet with your siblings and significant other to get everyone on the same page. You even may want to be accompanied by a financial expert who can provide educated and unbiased support.

“Problems become exponentially more complicated if kids don’t communicate well with each other and don’t present a unified plan about how best to support Mom and Dad, socially, environmentally and potentially financially,” suggests Sally Hurme, an elder law attorney and author of “Checklist for Family Survivors: A Guide to Practical and Legal Matters When Someone You Love Dies.

Help your parents plan retirement.

When my siblings and I sat our parents down about their retirement, they at first a little defensive. However, we remain calm and reassured them that we we just wanted them to be able to actually enjoy their retirement. There were no other motives.

Once cooler heads prevailed, we asked them if they would be willing to share with us document like bank accounts, wills, trusts. Additional information included:

Health and long-term care insurance policies.

Investments, pensions, Social Security.

A durable power of attorney, health care proxy, living will.

Debt repayment, such as their mortgage and any other outstanding debt.

With this information in toe, we could begin helping them create a budget in order to maximize their savings. From there, we were also able to pinpoint and eliminates unnecessary expenses so that they can bolster their contributions.

Additionally, if your parents are still able, recommend that they delay retirement — even if it’s just a year or two. If it’s no longer possible for them to work full-time, ask if they are willing to work at least part-time. When my mom retired, she began babysitting for my brother and sister a couple of days each week as a supplement income.

Moreover, see if they qualify for assistance programs. While this varies from state to state, there are a number of programs that can help seniors with housing, home repairs, heating and energy, transportation, meals, and prescription drugs. I would head over to the National Council on Aging’s website for a full list of programs that your parents might be eligible for.

Keep the conversation going.

Let’s say that you were able to successfully help your parents cut back on discretionary purchases. You even found some assistance programs that are saving them money on utilities or medical expenses. With the money that they’re saving, they now able to put that towards their retirement.

But, just because they have a plan for retirement doesn’t mean that you should take your foot on the pedal.

“Ideally, this will not be a one-time discussion,” notes Wells Fargo. The good news is that this topic will become more comfortable if it’s recurring. During these talks, “continue to provide your parents with information and ideas to help them manage their finances. Ask regularly about their plans and concerns, and tell them you’re available if they’d like help addressing certain issues.”

What’s more, pay attention to warning signs like:

Missed payments or late notices.

Being careless with their money.

Donating too much of their income.

Falling for potential scams like email phishing scams or sharing personal information over the phone.

Mental deterioration, such as becoming too forgetful.

There’s no need to panic if you spot any of the above. Instead, you want to be mindful of any financial or health problems so that you address as soon as possible. In some cases, that may require someone to literally take over your parent’s finances.

Don’t derail your own retirement plans.

Finally, make sure that you aren’t putting your retirement in jeopardy. Make sure that you have retirement a plan and are sticking to it. If not, then how can you be in a position to help your parents?

And, that also means not lending them money if you don’t have it. Take care of your priorities and build your own savings before anything else. Then, if you’re comfortable and have the means, you can assist them financially.