Just because your parents are approaching retirement age or have already retired, does not mean that they will have enough money to meet their needs. People often approach money with the same mindset they had while working full-time, not realizing that they may have to downsize their spending to stay afloat financially in retirement. Parents rarely talk about money to this extent with their children, so you might be worrying, Are your parents financially prepared for retirement?
Checking the Pulse of Retirement Finances
The average Social Security retirement check is $1,317 per month. If your parents own their home rather than rent and they have paid off their mortgage, their Social Security check will go further than it will for others. People who never bought a home will have to pay rent for as long as they live. Those who bought a home but have not paid it off yet, will face more years of monthly mortgage payments.
If your parents lived paycheck to paycheck and have car payments and other ongoing debt payments, they will have a hard time meeting their financial needs in retirement. Buying that RV when they retire, is also not going to help their financial picture.
Let’s say that your parents need $3,000 a month, in addition to their Social Security checks, just to pay their living expenses in retirement. This will total $36,000 a year, not accounting for a medical crisis, nursing home care, or another life event that could hit them with an extraordinary cost. If your parents retire at age 65 and live to age 85, they will need $720,000 in savings.
Studies show that about 30 percent of people 55 and older have not saved a dime for retirement. Add to that the fact that another 26 percent say they have less than $50,000 in retirement savings. Only 26 percent of people age 55 to 65 reported having accumulated more than $200,000 in their retirement accounts. The odds are that your parents do not have enough money saved to see them through retirement.
What Can Your Parents Do to Prepare Financially for Retirement?
Unless you want to have your parents move in with you for their golden years, your parents should take these steps:
- Pay off their mortgage.
- Own, do not rent their housing. If they do not yet own a home, there are creative options, such as buying a duplex and renting out the other unit to pay the mortgage.
- Save as much as possible.
- If their savings are inadequate, they should work for as long as possible. Every year they continue to work, is another year with a paycheck, more money to put away in savings, and possibly a higher Social Security check every month when they do retire.
- Consider downsizing their dwelling or moving to a less expensive location.
- Do not waste money on depreciable assets, like new cars. Buy a reliable vehicle and take care of it, so that it will last. Think about using public transportation or ride-sharing services, like Lyft or Uber.
- Talk with a financial planner about how to stretch their dollars in retirement.
- Meet with an elder law attorney about their financial and legal options after they retire.
Because the laws are different in every state, you should talk with an elder law attorney near you. This article talks about the general law.
Investopedia. “Are We in a Baby Boomer Retirement Crisis?” (accessed February 16, 2018) https://www.investopedia.com/articles/personal-finance/032216/are-we-baby-boomer-retirement-crisis.asp
A Place for Mom. “The Danger of Falling for the Financial Independence Myth.” (accessed February 16, 2018) https://www.aplaceformom.com/blog/5-01-17-busting-financial-independence-myth/