Comprehensive estate planning and retirement planning can help you plan for any number of possibilities in your own life. But what if your aging parents didn’t make those plans, and don’t have the resources to care for themselves in their later years? Or if they did make retirement plans but outlive their savings?
Many of today’s workers will someday be in the challenging position of balancing their own financial needs with their parents’ needs. In fact, many of today’s workers are already living this reality. In one 2020 GoHealth study of millennials (age 24-39) and Gen Xers (age 40-55), respondents said they spend an average of 11.5 hours per week managing their aging parents’ healthcare needs. Nearly 70 percent of Gen Xers and 59 percent of millennials said they help with their parents’ medical bills. Two-fifths of respondents said they had spent more than $10,000 of their own money in the previous year on their parents’ expenses. And an overwhelming majority of respondents in both age groups said they’re worried about having enough money to take care of themselves and their parents.
Having the chance to care for your aging parents (and/or aging in-laws) can be a blessing, financial challenges aside. It may feel hugely rewarding to be able to provide for your parents’ needs and keep them comfortable in their final years—but not at the expense of your own retirement plans. You don’t want to put your own kids in the same position when you reach retirement.
Even if you’re young and your parents are relatively healthy and financially stable right now, we recommend talking to your financial advisors about how your retirement plans may be impacted by your parents’ future needs. These are a few of the questions you’ll want to address.
One of the biggest ways aging parents may affect your retirement plans is by forcing a change to your retirement timeline. Maybe all your plans are predicated on the idea that you’ll work until age 65 and wait to take Social Security until 67. But what if you end up having to take on a caretaker role that requires you to cut back to half-time work at age 60? Or you retire entirely at 62 or 63 to care for aging parents, and have to start taking Social Security years earlier than you planned? Or you have to delay retirement to age 70+ because you have to recoup what you spent on your parents’ care?
Any change you make to your anticipated retirement timeline will have a ripple effect that extends to your investments, estate plans and quality of life during retirement. If you’re married and your spouse also works, any change to your retirement timeline might also change theirs as well.
Costs add up quickly when you’re taking care of aging parents. Even if they have their own retirement savings and insurance policies to cover their primary expenses, they may not be able to afford incidentals on a fixed income. You may someday need to help pay for things like groceries, personal items and copays. If your parents don’t live nearby, there will be travel expenses too. Spending $25 here and $150 there can add up to thousands of dollars in expenses per year.
And what if they don’t have any retirement savings or insurance policies? What if one or more parents needs in-home care or long-term care in a nursing facility? They may be able to get long-term care coverage through their state’s Medicaid program (MassHealth, here in Massachusetts), but they’ll still need help to pay for incidentals.
Speak to your advisors about the ways you might be able to meet those needs. Will you divert cash from your retirement plans? Will you pull that money from investments? Downsize your home and change your lifestyle to free up more money without touching your 401(k) or other retirement accounts? The earlier you start thinking about what you would do if your aging parents need help with expenses, the easier it will be to make those financial decisions when the time comes.
Depending on your family’s unique circumstances, you might have help shouldering the financial burden of caring for aging parents—or you might not. If you have siblings and/or other close relatives you anticipate would help you with both physical and financial caretaking, it’s worth having a frank discussion with them about what kind of resources you all might be able to provide if necessary. It’s better to learn now that your sibling is bankrupt and can’t help pay for Dad’s future care, than assume that he’ll be able to split those costs with you.
If your parents don’t have life insurance to cover death expenses, it’s possible that funeral and other end-of-life costs will have to come out of your pocket. These costs can exceed $10,000. It’s also smart to speak to your financial advisors about how your parents’ estate costs might affect you. If your last surviving parent dies with an estate that owes estate taxes, those taxes may be owed before probate is complete and you’re able to access estate assets. That might mean you have to come up with tens of thousands of dollars in taxes from your own savings or retirement accounts.
Sachetta, LLC’s advisors can help you create the plans that will help you afford a comfortable retirement no matter what curveballs life throws at you. Speak to us now about how to balance your long-term financial needs with your aging parents’ more immediate financial needs. Contact us today.
Michael J Callahan, CPA, CFP®, MST
Michael is a Certified Financial Planner™ practitioner, Certified Public Accountant, and holds a Master’s Degree in Taxation from Bentley University. Mike has been involved in personal financial planning, as well as both business and individual taxation for more than 15 years. Our ideas about money are formed by our life experiences. Over the years, Mike has seen those close to him make common money mistakes from not having enough life insurance, to not doing the proper estate planning. When he received an inheritance in college and started looking into how he could use it to achieve his goals, he realized that he could use those experiences to help others. He changed his major to Finance, and the rest is history.