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If your parents are approaching retirement, you might start to wonder what their plan is for living off their savings – or if they have any savings to live on.
According to a 2020 AARP report, nearly one-third of adults with at least one living parent provide them with financial support. Additionally, more than 40% of respondents expect to provide support to their parents in the future. And for many adult children from immigrant families, it is extremely common for them to financially support their parents in retirement.
Saving and investing for your own future is hard enough, especially with the rising cost of living, student debt, and the cost of raising a family. And when it comes to doing all of this plus helping your parents retire, you can feel like you’re between a rock and a hard place.
So Select spoke to Delyanne Barros, the founder of Delyanne The Money Coach, for advice on how to strike a balance between the two. Barros has increased his own net worth to $1.05 million, at the time of writing, and is taking steps to retire early and retire his mother.
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Talk to your parents about the state of their finances
“The first thing you need to do is have a very transparent conversation with your parents to see where their finances are right now,” Barros says. “You might panic about something you don’t need to panic about.”
What’s more, Barros says that many adult children don’t even know how much money their parents make, if their parents are about to repay their mortgage, how much money they have saved or even what their parents’ monthly expenses are.
It can be helpful for you to know how much money your parents have saved and invested, how much debt they have (and what types of debt they left behind), whether or not they have a retirement plan, and when they expect to take over. their retirement.
You may realize that your parents are actually better equipped to support themselves in retirement than you think. And if the outcome of the conversation helps you realize that your parents might still need your help, there are a number of ways you can help them while planning your own future.
Discuss additional income options for your parents
Additional income — like Social Security distributions, rental income, cash from a life insurance policy, and dividend income from stocks can help you avoid taking too much money out of your savings and investments in retirement . This way, your savings and investments can last a little longer. It’s worth talking to your parents about the extra income options they’re considering.
On average, Americans receive $1,658 a month in Social Security benefits. To get an idea of how much your parents may receive, you can use the Social Security Administration’s calculator to enter information about their tax status, current income, and desired retirement year. Remember that this is only a rough estimate and may not be what your parents receive.
Depending on your parents’ expenses, a combination of these additional sources of income could be enough to cover almost all of your parents’ monthly expenses in retirement.
Make sure you are comfortable with your own budget
Before you start helping your parents, you need to make sure you comfortable with your own budget, which includes covering your needs, wants and debts. This can help you determine how much money you can comfortably contribute to help your parents.
If you’ve never seriously thought about what your monthly spending looks like, it might be helpful to use an app like Mint or YNAB (You Need A Budget) to track where your money is going so you can see how much you’re spending. and how much you have left each month. From there, you can decide how much you can afford to give to your parents or save on behalf of your parents.
Keep in mind that helping your parents retire doesn’t always mean covering 100% of their expenses out of pocket. You might find that the best way to balance helping your parents and saving for your own future is to provide small monetary contributions, like paying for their Wi-Fi and utilities or covering their monthly grocery bill. .
Continue to contribute to your own 401(k) account
Your sponsored employer A 401(k) account is one of the easiest ways to start saving for your own future. With a 401(k), a portion of each paycheck is automatically deducted and invested in your account (some employers even match your contributions to make your balance grow even faster).
The money you contribute is pre-tax, which means it’s already invested before your paycheck hits your bank account, you don’t even miss it. If you have trouble dividing your paycheck between purchases and savings, your 401(k) account can save you the hassle. So even if, after covering all your expenses, you can’t afford to help your parents save for retirement and save for your own future, at least you’ve already contributed to your 401(k) account. ).
Barros credits his 401(k) account as a very important way to become a millionaire before age 40.
“I started investing in 2011 when I was 28 through my 401(k). So I started early and even though I wasn’t investing a lot, I was still investing consistently,” says she. “I would increase my contribution rate each year as my salary increased.”
Plus, in addition to your 401(k), you can contribute an additional $6,000 per year by opening a traditional IRA or a Roth IRA. A Roth IRA is a great tool when it comes to saving for retirement because you can contribute after-tax money that’s invested, grows tax-free over time, and can be withdrawn without paying tax.
There are many Roth IRA providers, like Vanguard and Ally Invest.
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Talk to your siblings about pooling your resources
Carrying the burden of your parents’ retirement alone can put additional financial and mental strain on you as an individual, so if you have siblings, it’s worth talking to them about finding a way to work together to help your parents retire.
Maybe your siblings agree to help you pay monthly dues to a family emergency fund that your parents can use if they need extra money for their one-year retirement. Or, maybe you have a system in place where you will cover your parents’ utility and grocery bills if your siblings send them money for other expenses each month.
Another thing that might work if you, your siblings, and your parents don’t live too far apart is for your parents to live with you for half the year and then live with your siblings for the other half. It could help your parents avoid having to spend a lot of money on housing in retirement (if they don’t mind moving from house to house every six months), and if you have you -even young children, you could save on childcare by having your parents help look after them. Keep in mind, however, that this approach may not be ideal for everyone, as it involves a much larger financial commitment.
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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.