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My parents are unprepared for retirement — how can I help them?

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I have a question about planning retirement for both me and my husband, as well as our parents. His parents are a bit more prepared for their retirement, but my parents aren’t as prepared. They have 401(k) plans but it doesn’t seem like the amount within those 401(k)s is actually enough. How can kids prepare for their parents’ retirement, and should we be helping to set aside money not just for our own retirement but also for our parents? If our parents are already in their late 50’s to mid 60’s is there anything they can still do at that age to better prepare for retirement?

Sincerely,

Concerned Daughter

See: I’m 63, a widow and lost my job because of COVID. I don’t have much in savings and feel lost. What can I do?

Dear Concerned Daughter,

Your parents and in-laws are so lucky to have someone who worries about their future financial security. The truth is, you’re right to be concerned. Without adequate planning and preparing, your loved ones could end up ill equipped for their old age, which would affect not only their lifestyle and comfort in the future, but potentially yours as well.

“In order for adult children to properly create their own financial path, it’s so important to understand whether financial support for their parents will be a part of that path,” said Jake Northrup, financial adviser and founder of the advisory firm Experience Your Wealth.

That they have 401(k) plans to begin with is great. To see if what they have is enough, or how much more they may need, you should have them figure out their current income, their total assets, their guaranteed sources of retirement income (like Social Security or a pension) and what they’re spending is like now (as well as what they anticipate their spending to be like in the future). This should include housing, groceries, utilities, health care costs, taxes, leisure and anything else important to them. They may need to downsize their housing or trim their expenses to help balance how much they’ve saved now with how much they’ll need in the future. And as they’re doing these calculations, they may learn whether they could maximize their current savings, or come up with a plan to earn more if possible. It’s like a financial health check-up, if you will.

Talking about retirement planning and future financial security or health can be difficult, especially with parents who may become uneasy or defensive (and they may — they want to take care of you, not have you worry about taking care of them). Still, it’s one of the most important conversations you can have to ensure they’re at least thinking of ways to live comfortably in their old age, and so that you can know where you fit into that equation as well. Because if you are part of their plan, you’ll need to budget for it.

You’re already doing something to help them — you’re talking about it before they actually transition to retirement. “In my experience both as a daughter and a planner, the best thing you can do is have the conversations early before it’s too late,” said Laurie Allen, founder of LA Wealth Management. Her father was reluctant to share information about his finances with her, and when she finally did gain access, it was “utter chaos,” she said. She and her four siblings now help their father and his wife with housing, food and car payments. “In our household, it ended up being a line item we had to budget in as we planned for our own future,” she said.

The good news: Your parents, especially those still in their mid-50s, are still young and have time before they reach a traditional retirement age. The conversations you have now could really help all of them.

Broaching the topic may be the hardest part, but there are ways around that. You can start the conversation talking about yourself and how you and your husband are figuring out your finances and thinking about your own old age, and then use that to transition to talking about them, their retirement plans and their estate documents, said Howard Pressman, partner at EBW Financial Planning. “Unfortunately, I have seen people having to work through significant problems and the anxiety and stress that comes with it, because simple documents were not in place,” Pressman said. “Often, this non-threatening conversation leads to larger conversations that can be very helpful for families.”

You may even want to bring an actual financial planner into the discussion, if that’s an affordable or available option to you. “The conversation will likely be awkward, but a financial planner can act as a ‘scapegoat’ or ‘excuse’ for having the conversation,” Northrup said.

If you’re talking to your parents one-on-one, there are a few questions you can ask, including: Do you have a budget? How do you manage your investments? What are your plans for health insurance until Medicare kicks in? Do you expect us to help you in retirement in any way, such as financially or physically? Do you plan to live with us? Do you have any concerns about your retirement, and what are they?

“These probing questions will uncover planning gaps allowing children to step in and assist if desired,” said Charles Adi, founder of the advisory firm Blueprint 360. “Assistance can look like monthly cash payments, investment management help or the purchase of the needed insurance coverage.”

When they claim Social Security will also help. Individuals can begin claiming at 62, but their benefits would be reduced until their Full Retirement Age (they can check what their FRA is here). If they plan to work well into their 60s, they may be able to delay when they claim their benefits — the longer they wait, the more they get. If they hold off on claiming until after their FRA, they’ll get even more money than they’re owed. Social Security was not meant to be the only source of retirement income for Americans, but it will certainly help offset any savings deficiencies.

There are a few other considerations they can make. Long-term care insurance is a viable option, especially if they don’t have many health concerns right now. The younger and healthier the individual, the lower the premium (it’ll get expensive the closer they get to “old age”). Long-term care covers a person’s health expenses when they are no longer able to care for themselves, such as bathing, feeding or moving around the house. It is also used to pay for nursing homes or assisted living facilities, which could cost thousands of dollars a month.

Don’t miss: Health care will cost this much in retirement — but probably even more

“A medical event that requires long-term care can decimate household finances by tens of thousands, or even hundreds of thousands of dollars per year,” said Karen E. Van Voorhis, director of financial planning at Daniel J. Galli & Associates. In some scenarios, adult children have paid the premium for their parents to ensure their finances aren’t “demolished” by the health care expenses, though of course it would be ideal if your parents could pay for it themselves. Even if paying for this type of coverage is not possible, having a plan in place for what to do in the event of a medical emergency or illness in the future would help. “Whether it is using an insurance company to help with the risk or if they choose to self-insure, plans should be made well in advance,” said Michael Resnick, senior wealth management adviser at GCG Financial. Think about the type of care they may need, who the caregiver would be (professional or familial), how it would be paid for and other living arrangements.

They should also have a few crucial documents in order, including a power of attorney, a will and a health proxy, which will spell out their wishes for their health care should they become incapacitated as well as where their belongings go. There are websites and apps to help people store their necessary documents and requests. This can be done even during the current pandemic, which may be the best time to update their last wishes and get paperwork in order. The paperwork should also include a list of digital assets, such as passwords to online accounts, Resnick said.

If you have siblings or any other family members who can help, this is a good time for you all to discuss your own plans about your older loved ones’ well-being. Unfortunately, one of the major arguments siblings have involves how to care for mom and dad physically and financially. It may not be a pleasant few hours (or days), but getting the gears turning now is better than waiting until an emergency or unfortunate event occurs.

Also see: How to talk to your family about your estate plan

Throughout all of this, don’t forget to take care of yourself and your family’s plans for your own retirement. Even if retirement isn’t for a few more decades, try to stash away as much money in a retirement plan as possible. You should also have an emergency fund for unexpected scenarios. After talking to your parents about their realistic retirement plans, you may decide to open another account earmarked for them, which could give you some comfort in the event they have an emergency situation one day.

It comes down to communication. You want your parents to be comfortable and secure in their old age, but you need to balance that with your own soundness. Having these conversations may not be easy, and they may take weeks if not months of back-and-forth, but they’ll be worth every second later in life. “If you have a parent that has always done everything on their own, they may be stubborn to accept help at first,” said Mackenzie Richards, a financial planner at SK Wealth Management. “However, it’s very likely that they are concerned with their own financial picture and could use assistance.”

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com



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