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Are You Your Parents’ Retirement Plan?

   Posted On: July 11, 2016  |    Posted In: Love and Money  |     Posted by: Broke Millennial®

A perverse game gets played in my family. For lack of a formal name, let’s call it the Percentage Adjustment Game. In moments my younger sister or I do something to jokingly tick off my Dad (this could be as simple as the time my sister saw Friday Night Lights and said, “oh, it’s like rugby”) he will respond with, “You just lost X percent” or “your sister just got Y percent.” He’s referring, of course, to the splitting of our hypothetical inheritance.

The Percentage Adjustment Game is purely grounded in fiction for us as my sister and I both live under the assumption we won’t receive an inheritance. That isn’t to say our parents are gallivanting around the world blowing money we would otherwise inherit, but rather because we both plan to forge our own paths to wealth and don’t want to plot our futures based on a potential windfall from Mom and Dad.

The advantage, however, of growing up with death, money and inheritance being a point of humor is that our parents managed to remove the taboo out of the conversation. It’s not unheard of for me to casually be able to bring up long-term care insurance over dinner or ask if my parents ever plan to live with my sister or me in their twilight years.

When I mention the Percentage Adjustment Game to my fellow millennial friends, I’m often met with looks of shock and horror. It seems my peers don’t talk about their parents demise casually around the dinner table. But my jaw drops to learn that many of my friends have absolutely no idea if their parents are prepared for retirement or financially set for their final years.

You deserve to know details about your parents’ financial futures, because it’s imperative to begin budgeting and saving early if you’ll be handling the costs of a parent’s medical care, or retirement community or you simply need space in your own home to ensure your parent (or parents) feels welcomed and comfortable.

This may be even more important for millennials whose parents raided their retirement funds to pay for college. There are loans to pay for college, but those same loans don’t exist for retirement.

What you should know from your parents

This conversation is uncomfortable. Parents don’t want to talk about a time they’d be unable to feed themselves or handle their own bodily functions, and you don’t want to seem churlish or unloving by asking, “hey, am I going to have to take care of you in 20 years?”

There are certainly more tactful ways to open a dialogue with your parents and the conversation doesn’t need to all happen at once.

The goal should be to find out if your parents have:

  • Long-term care insurance: Policies vary, but long-term care insurance can help cover the costs of helping those with a chronic illness or disability that will need help ranging from daily activities like dressing and eating to more skilled care like physical therapy. This insurance has become exorbitantly expensive and may be cost-prohibitive for many families unless they purchased a policy early.
  • Retirement funds: Parents may be wary to share how much is in a 401(k) or IRA, but knowing if your parents are funding one is a good start. Your parents may also be fortunate enough to have a pension, which could mean steady income for the rest of their lives.
  • A paid-off home: A mortgage free home is a major asset not only to the balance sheet, but it also provides your parents with peace of mind. They have a place to live with no strings attached and selling the home to move in with you or to a retirement community can provide funds for other needs.
  • Debt: Learning if your parents have any lingering debt such as medical bills, student loan payments or credit card debt gives you some insight about whether or not they’ll be able to retire or financially stable if and when working is no longer an option.
  • An updated will: Make sure each parent is financially protected in the event of a death. For example, is your Mom set as the beneficiary on your Dad’s accounts and vice versa? Do both parents know all the login information to bank and brokerage accounts? Having a recent will in place is an important financial practice during all stages of life and can help simplify necessary actions during times of grief.

How this can impact your future plans

Unexpected expenses can destroy the best-laid budgets and drain emergency funds. Taking care of a parent could have the same financial consequences as having a child, which is why it’s best to understand early if your parents will be relying on you in 10, 20, 30 years. Just like couples that save up before trying to start a family, you can begin investing and saving with the idea of putting the money aside to help your parents. This simple practice can help keep both of you out of debt.

Should your parents be open to having this conversation it’s wise of you to ensure the sibling taking primary responsibility will have power of attorney. This will enable medical and financial decisions to be made on behalf of the parent if he or she is incapacitated. It can also protect your parents’ financial affairs so you have access to their funds and can ensure the money is being used properly. Poor financial choices can be an early indicator of Alzheimer’s, so power of attorney could allow for you to protect a parent from him or herself.

Your parents might have been saving for retirement since long before you were born. Maybe their retirement accounts funded your college education. Regardless, it’s important to be open and honest about expectations in the future. If you’re unwilling, or unable, to take in a parent, then you should consider saving to help subsidized the cost of a retirement community. If your parents are financially fit for retirement, then you should ponder how you could provide emotional support.

It isn’t just about the bottom line

Yes, you should absolutely consider the financial implications of being your parents’ retirement plan. Not only can you start planning early, but it also offsets the chance of being blindsided when a parent becomes unable to care for himself. But ultimately, it’s about more than just money. It’s about providing the best, possible life for the people that raised you. Being kind, understanding, available and emotionally supportive cannot be translated into dollars and cents.
[Originally printed on Forbes]

Let’s keep this good time rolling. Go learn about building and understanding your credit score with this post I wrote on Haven. 

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24 responses to “Are You Your Parents’ Retirement Plan?

  1. I am so grateful my parents have been relatively responsible with their retirement savings. They both have pensions and live frugally. My father is semi-retired at 62, but still working a few shifts a month as a pharmacist. My mother works for the state and will probably stay until 65 or so. I’ve encouraged them to work with a financial planner to help them feel more comfortable moving forward.

  2. This is a great article and something I’ve dealt with personally. I like how you brought up that millennials may have to help their parents eventually with a place to live. An in-law suite is something that I have considered before and as much as it would probably be stressful, it might be necessary at some point. Luckily, my parents home is one-floor which makes for a great transition home should they have mobility issues in future.

  3. This is a great post on something that truly doesn’t seem to be discussed enough. I’m fortunate in that my parents are the same way, and regularly joked about these kids of things. (Our comeback to the joking inheritance-threats was: “well we decide which nursing home to put you in eventually” – this also gets horrified looks from people outside our family) It’s such a helpful strategy though to have those serious discussions about what the future will hold. People plan for potential future children as dependents, so even beyond the emotional and moral arguments for it, it just seems logical that we should also plan for having our parents as potential future dependents as well.

  4. Luckily if your parent is a US citizen, Medicaid will pretty much pick up the tab when they need assisted living. I had no idea that about 65% of Medicaid spending goes to seniors living in nursing homes

    1. It isn’t that simple though to get Medicaid dollars to pay for assisted living or nursing home. As a nurse that has worked with case management/discharge planning, I would say that is a default plan. If long term care is needed immediately following an unexpected event Medicaid will not be there to pick up the tab right away. These conversations are definitely important because it is tough when families have to make choices about parents living environment in a matter of days.

  5. I believe that I will end up taking care of my parents financially down the road. I have absolutely no drawbacks or hesitation towards doing that because I know they’ve sacrificed so much for my brother and me and I love them so much. Time to get along with a much needed conversation with my parents soon!

  6. I didn’t think about this until I graduated university and started contributing to my own 401k and IRA. My parents have loads of bad money decisions and money was never a talked about subject. Fortunately they both have pensions (my mom was in the military for 22 years and dad has a grandfathered pension). They also both have a good amount in investment accounts.

    I imagine that with the retirement crisis currently happening with baby boomers, and money not being a discussed topic, many younger adults many be in for a surprise when they have to start taking care of their parents.

  7. Awesome post on a topic that isn’t discussed very often.

    It’s interesting in our culture it is just “assumed” that one of the sons will take care of the parents when they get older. This usually means having them live with you, but there are many other questions such as health care costs and just general living costs.

    It’s something that should be discussed openly but usually is not.

  8. Erin, this was a very thorough article covering a potentially sensitive issue. It’s a good reminder that either myself or one of my older siblings will have to have some of these conversations at some point, probably within the next five years. Thanks for posting!

  9. I just wonder how many millenials who are 35 and living the life of the perpetual teenager in their old bedroom in their parent’s home realize that the role will likely be reversed in twenty years since their parents can’t save for retirement if they’re still supporting adult children..

  10. I just wonder how many millenials who are 35 and living the life of the perpetual teenager in their old bedroom in their parent’s home realize that the role will likely be reversed in twenty years since their parents can’t save for retirement if they’re still supporting adult children.

  11. This post makes me sad a little considering the sobering reality that I know my parents aren’t prepared for retirement and one of them I know is about 15 years shy of 65. I honestly don’t know how to prepare for it or what I’ll be able to do to help. A plan definitely needs to be in place, but it’s hard sharing thoughts with your parents about how you think or feel they should be handling their finances. Thankfully, my mother-in-law is in a good position, so that’s something to be happy about:)

  12. OK, that’s kinda a hilarious game!

    My parents thankfully are financially responsible and I’m not worried about their futures.

    My in laws are not well off but given that our superannuation is universal and not means tested, honestly they won’t be any worse off in retirement.

  13. I am lucky that my parents are financially responsible, so basically they are the reasons why I am financially stable and why I have saving for the future.

  14. This is such an important topic and not covered that much, which is surprising given how many people are out there talking money. It’s so hard to talk about because no one wants to contemplate losing their parents. Both my parents and my husbands parents have brought it up quite a bit lately and I am glad they have. Like life insurance, it’s best to just deal with it, make decisions and get it over with. Then, when everything is in place, you can put it away again until the time comes. Retirement is tricky for most people in this country no matter how well they have saved. Health costs and long-term care can topple even the loveliest old-fashioned pensions and generous retirement plans. There are not a lot of great safety nets for that, unfortunately.

  15. This is a great guide and really a useful topic. One have to concentrate on parental retirement so that you also can save your future. Thanks for this share.

  16. This article is also good for the parents to understand the need of their children to know more about the parent’s finances. I have two teen children that I am mostly responsible for financially. I have talked to them in the past about how much money we have and the plans for paying for their college. So far, so good with our plans. I have not talked details on how we plan on retiring and what expectations we or they have for taking care of each other. I think it will be good to have those talks now so I can share what I did with my siblings for my parents. It is a confusing and hard time as parents start to fade from their glory days. I’m thinking that if our kids are prepared for what is wanted and not wanted, that it will be easier for them to make the hard decisions and accept what is & is not possible. Thanks for sharing your thoughts on what information should be shared.

  17. My parents set up the business I now have. They left it with a £350k overdraft and no advice when I took it on, they just walked away. When they walked away they took staff with them which I am still paying for along with their insurance and household bills. I have put all their costs on a spread sheet that I have been paying for, which amounts to over 100k in three years but they are unwilling to help. They have also included their personal tax bills in my business tax, they have plenty of money. I just don’t understand it. I have thought about just cutting it all off but feel guilty just to leave all the admin to them. I have built the business up and its been hard with no advice whatsoever from my parents. I have been told they don’t want the business to look a success without them. Its a terrible situation and no idea where to go from here.

  18. Hii!!
    My parents have already decided for their retirement plans. Both my father and mother had their savings. Even they are planning to go for retirement community for their better care. As they want to spent their golden years happily.
    Thank you so much for great sharing.

  19. This is probably the most uncomfortable conversation you’ll ever have with your parents. They don’t like to share their finances, discuss their future needs and talk about who will help them when the time comes that they can no longer carry out their daily living activities.

    This is hard but not impossible. My advice is to take one step at a time in order to find out if your parents have a sound retirement plan. In my opinion, it’s important that they have long term care insurance because this policy coves expensive long term care expenses. This will benefit you because the average cost of a private room in a nursing home is around $93,000 annually. You definitely do no want to pay for that out-of-the-pocket.

    You need to plan for your own retirement too and it will be hard if you’ll have additional expenses such as this. So as early as possible, start the conversation and help your parents plan for their future needs.

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