Retirement Finance
What you don't know about your parents' retirement plans could hurt you financially
Most working Americans have no clue how prepared their parents are for retirement, a knowledge gap that could hurt their own finances.
About 7 in 10 of adults between 25 and 44 said they know little to nothing about their parents’ finances, according to a survey from AgeUp, an annuity product issued by MassMutual and sold by Haven Life Insurance Agency.
But nearly the same share expect they will need to financially help their parents if they outlive their savings. The survey polled 1,500 people and was given to Yahoo Finance exclusively.
This discrepancy comes at a time when those nearing retirement and their adult children are both vastly behind on saving for retirement.
“If [retirees] run out of money in later years, there will be a realization their [children] have to step in,” said Blair Baldwin, founder at AgeUp.
Retirement preparedness
While you should have eight times your starting salary by the time your 60 saved for retirement, most of those approaching retirement have vastly less than that. The median amount saved by those between 56 and 61 is $21,000, according to the Economic Policy Institute.
“For the retirement generation before, there were defined-benefit plans such as a pension,” said Edward Gottfried, group product manager at robo-advisor Betterment. “This is the first generation where 401(k)s could make the bulk of retirement savings.”
The future of Social Security benefits and longer lifespans also worry many Americans when they think about their parents’ retirement.
About 7 in 10 Americans believe Social Security won’t be a reliable source of income when their parents reach their 90s, the survey found.
Recent research by the Social Security Administration highlights that trust fund reserves will be depleted starting in 2035 when the oldest baby boomers turn 89, and only 80% of the program’s costs will be funded. This could mean reduced benefits for retirees.
Half of respondents believe at least one parent will live into their 90s, while 3 in 5 worry about their parents running out of money in their later years, according to the survey.
Trends in longevity really have changed. “The average lifespan has gotten longer,” Baldwin said. “It’s not unheard of people living until their mid-90s or early 100s. That really is a new societal development.”
Children stepping in
Four in 5 adult children agreed they need to consider the needs of their parents and in-laws when planning their own long-term financial plans, according to the survey. But just over a third have done so.
If children don’t address the financial elephant in the room with their aging parents, the trickle-down effects include setbacks to their own goals.
“If they find out they need to help their parents with retirement or long-term care expenses, they will have to dial back on their own retirement contributions or even their educational savings for their kids,” said Henry Hoang, a certified financial planner at Bright Wealth Advisors in Irvine, California.
But not all consequences are financial. A lack of transparency can simply erode trust between generations, Hoang said.
“If we ignore potential issues that’s going to build up resentment even within the most generous and well-intentioned people,” Hoang said. “This is often due to seeing your own personal objectives taking a step back.”
Having the conversation
Talking to parents about their personal finances is the second most awkward subject for adults, according to the study. But experts say there are ways of alleviating the uncomfortable feeling. The first step is reframing the discussion as soon as possible.
“Taking a holistic view of retirement readiness will have you be more prepared,” said Gottfried, who recommends having the initial conversation 10 to 15 years before the parents’ retirement. “Think of it as an activity around [goal-setting].”
Financial advisors also recommend asking if your parents have a reliable financial plan.
“I’d ask them if they have a plan to create predictable income during retirement years,” said Hoang. “The moment even people have to turn one million in assets into income is a different feeling and experience.”
Another tip Hoang has for those nervous about the ‘talk’ is asking if their parent’s retirement plans consider unexpected expenses.
“If you are fairly healthy you can live past 85 years,” Hoang said. “So, in that case, you should be realistic about retirement projections covering risk of inflation as well as healthcare costs.”
If you’re still struggling to approach the conversation, remember that having the conversation now will make it easier for future family conversations.
“Approach the conversation from a place of love and family support,” Baldwin said.
Parents’ responsibilities
While it may fall to millennials and Gen Xers to initiate the financial conversation, their parents should do their part to shore up their finances as much as possible before their golden years.
As a starting point, they can take advantage of catch-up contributions to retirement accounts.
For instance, those above 50 can contribute an extra $6,500 to their 401ks, above the $19,500 contribution limit for 2020. They can also sock away an additional $1,000 to IRA accounts on top of the $6,000 limit for 2020.
“Before you reach that retirement runway,” Gottfried said, “look at the type of life you want and be open to approaches outside of money you’ve already saved.”
Dhara is a writer for Yahoo Finance. Follow her on Twitter @dsinghx.
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I don’t see where most kids today could help their parents with finances. The kids don’t know how to manage their own finances. 3 -
I have more net income now than I did before I retired. The retirement check requires no expense from me and my part time job(s) have paid mileage that exceeds my vehicle costs. I spent $40K in 2019 just to get enough deductions to keep from having to pay a buttload of income tax. 0 -
It flows the other way for me - my parents have been gone for 20 years and I now advise my daughters about their retirement. Theirs is less than 20 years away, just about the time wife and I have left. So their inheritance and retirement will occur at about the same time. Nonetheless, they both are planning on their own nestegg, as if the inheritance is imaginary. Smart kids. 3 -
I can't understand people who have so little saved by retirement. I retired at 55 by not buying all the latest toys and making retirement savings mandatory. When the market crashed I stopped in the HR ladies office to talk to her about the amount of my 401K contributions. She was totally confused when I said I wanted to INCREASE my contribution. She and a lot of others had stopped their contributions. I figured I was getting bargain prices and it turned out I was right. At 65 I probably still have a little more in the stock market than I should have, but it's hard to pull it out when it's doing so well. Oh well if the market crashes again we have enough other assets that we will still be in good shape. Getting old ain't for sissies. Why add to the stress with adding money worries to the mix? Bob 0 -
Bob, you did well. It all comes down to when you start saving/investing for retirement.
Age 20 - No problems whateverAge 30 - Still very doableAge 40 - Much tougher to achieveAge 50 - You're probably screwed
Age 60 - What retirement?
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I think it boils down to dad telling me SS was supposed to be supplemental income and not to count on it supporting me when I retire. A lot of the Boomer generation counted on their SS benefits to support them when they retired. They have had a rude awakening. Bob 0 -
SW0320 said:I don’t see where most kids today could help their parents with finances. The kids don’t know how to manage their own finances.
My thoughts when I read the article.0 -
I guess I lucked up with my sons. I told them I set the bar low for them so they wouldn't have to be overshadowed by the fame of a very successful and famous father. I told them I did that all for them.SW0320 said:I don’t see where most kids today could help their parents with finances. The kids don’t know how to manage their own finances.
My oldest son, who I thought would be wearing a wife beaters tee shirt, riding his Harley and drinking Blue Ribbon beer all his life, now has enough money to burn a wet mule. He started off working in a factory and then he got into construction and then he met and became friends of the owner of the construction company. The next thing you know he was into property management for a large commercial real estate development and investment co. Then 20 years later he bought the company.
He never finished college but has a lawyer working for him full time in the company office along with several accountants and real estate managers. He laughs about it when people ask him where he went to school and he jokingly tells them that his brother went to Penn State while he went to the state pen. The one thing he has is the gift of gab. I've never met anyone that didn't like him. And like they say he could sell ice to an eskimo. My dad always said the boy could fall into a barrel of $#!+ and come out smelling like a rose.
My other son, the youngest one, did it the traditional way of going to school and working part time jobs until he landed a good one and then worked his way up in the company, a large computer company in Seattle. He's now a financial advisor working directly for the vice president of the company in accounting.
So they better come to my rescue if I ever need them in my old age or I'll come back and haunt them after I'm gone.0 -
I won't have much, most of my working life I earned less than 25K, started out in the Navy making peanuts, got out after 4 with no degree and worked numerous jobs.
Always did as well as I could, got promoted but was earning based on the "mans" expectation of what I should be paid not mine LOL.Late in life I started getting promoted a lot and eventually started making some good money but it almost killed me stress wise so I backed off and started my own business. (Best move I ever made).
Still ain't raking it in but the wife and I live modestly. We owe not a dime to anyone, bought and paid for a small house where we raised our two kids, bought and paid for 25 acres in the country, put a paid for Double wide on it so now we have two houses.
Saved about 190K, with that and SS and the lack of a mortgage or debt we won't be doing any cruises to Europe but figure we can still go to NC and see waterfalls and camp out!
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Interesting subject. All depends on your $$$ situation. I remember when my grand parents lived with us in their later years and died in the house! Imagine that scenario today 0 -
I was well aware of my Dads (lack of) retirement savings. I am still recovering from helping him in his final years. 0 -
25,000... average family savings. That will last about 2 years if you live off Taco Bell and drive a Prius 0 -
Prior to a round of golf, four men had lunch. While one stayed behind to pay the bill, the other 3 were talking at the first green. The first man bragged about how successful his son is. He started by detaining cars at a dealership, then became a salesman & now he owns several dealerships. He's so successful, he gave his best friend a brand new, top of the line Mercedes. The second man touted his son. He started as a laborer, became a carpenter, then a foreman & now he's the biggest developer in the state. He's so successful that he gave his best friend a custom built house. Not to be beat, the third one bragged that his son was very successful. He started as a runner at the stock exchange, then became a broker and now has his own brokerage firm. He's so successful that he gave his best friend a high dollar portfolio. With that, the 4th man showed up & they asked about his son. "He's a Homo, he dances at a gay bay, strips down, blows kisses and guys stuff dollar bills in his G-string. He's a Homo, but he does pretty well for himself. His 3 gay lovers have given him a Mercedes, a house and a stock portfolio." 0 -
I was going to complain about Toolman's post. But then I realized that most financial posts here are little more than tasteless jokes as well. 0 -
I got lucky. In 2007, the company I worked for started messing with how we chose to invest our 401. I got suspicious and moved all mine into a fixed interest fund. When the whip came down, many folks lost up to 30% in their fund. I still made 4%. I cashed out at age 59.
I kinda wish I’d hung in a little longer during the great stock market boom, but I did ok.0 -
My daughter told us 20 years ago she would put us in theist rest home we can afford. Anymore with the family values going to hell I would not depend on the kids for anything. 0 -
I don't think I'd call that luck. That was good business sense in my opinion. Those high rates of interest they were dangling out there to entice people to invest couldn't go on forever and you had the foresight to move it and then get out while the gettin' was good. Glad to hear you dodged the bullet.jimdeere said:I got lucky. In 2007, the company I worked for started messing with how we chose to invest our 401. I got suspicious and moved all mine into a fixed interest fund. When the whip came down, many folks lost up to 30% in their fund. I still made 4%. I cashed out at age 59.
I kinda wish I’d hung in a little longer during the great stock market boom, but I did ok.0
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