Wednesday, April 18, 2007

The Thing You've Overlooked About Retirement Planning

This week I received an invitation to go to a family member's 50th birthday celebration. It really just cements the idea that I have that we are absolutely responsible for our retirement. Now although this seems painfully obvious, it seems to me that if you are really interested in protecting your retirement and your savings you need to start getting agressive -- with your family! The issue here is so common, but I don't see many people talking about it in the PF Blogging community.

Just imagine the scenario: You are a twenty-something or a thirty-something. You delay gratification so you can save. You pick good investments, mutual funds, and have a nice healthy e-fund setup so that you generally pay cash for your large purchases. And good thing too. You've saved yourself about 100k in compounded interest over the course of your life by avoiding car loans and credit cards like the plague. Ok sure, not everyone is in this situation, but many people do a good job managing their finances and accumulate significant wealth for their retirement where they expect to take trips and the like and maybe even retire at 55 or 60 or 65 with no trouble.

Then reality sets in when this person is in their mid-forties. Their mom or dad has started running out of money. They are struggling to make ends meet because of low social security income and lack of savings. Its 2020 but now its too late to do anything in terms of saving. But you can't very well let your mom or dad live a life without having cable tv to watch or a decent car to drive or something to eat besides tomato soup and tuna fish every day. So, you (like a good kid) start supplementing their income with a few hundred bucks a month. And although it seems like no big deal at first, Mom or Dad starts to feel entitled and before you know it, you are in for quite a sizeable chunk of change.

The major issue is not that you keep tapping the bank of mom and dad (although there is plenty of that going on as well) but really that mom and/or dad could be tapping the bank of you -- if they don't have money for their lifestyle. So what is the solution?

Start talking to your parents about money now. Be agressive and be insistent. If you have a good relationship and love each other you need to do this fast. Ask about debts, mortgages, insurance, and savings. All of these things need to be tackled. Help them plan their retirement if they haven't started yet.

 It might simply be that they should stop living at their means because their means are going to drop by 50% the day they retire. Or, it might be that they are more than fine and you have nothing to worry about. But for me, the opposite was true when I had this discussion a little over a year ago. Some real heart to heart conversations left me very scared about retirement for my parents and I have started taking steps now, more than 10 years before they retire. Because its not too late yet. And simply having this conversation has changed behavior; it has allowed people in my family to start thinking about supporting themselves in the future. And that means that the drain on my own savings and retirement will be smaller.

Please note, in some cases, there's nothing to be done. The obvious one that jumps to mind is Medical emergencies. There's not much to be done unless your parent is engaging in really bad habits. But in the case that it is unexpected, you just have to roll with it. In reality, it would be wonderful to help my parents, if I have the means to. Its just that right now, I cannot be sure that I will.

1 comment:

harmgb said...

Very good points. I was lucky
in that my Dad was a university
professor with a very good deal
from a combination of the state and
TIAA-CREF with a 403b(?) and
good matching contributions. Good
health plan for him and Mom, too.
at least now I can deal with my
own retirement without having to
worry about my folks' finances.