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According to a 2020 AARP report, almost one-third of adults with at least one living parent are providing financial support to them. What’s more is that over 40% of respondents expect to provide support to their parents in the future. And for many adult children from immigrant families, it’s extremely common for them to financially support their parents in retirement.
Saving and investing for your own future is hard enough, especially thanks to the rising cost of living, student loan debt and the cost of raising a family. And when it comes to doing all of that on top of helping your parents retire, it can feel like you’re in between a rock and a hard place.
So Select spoke to Delyanne Barros, the Founder of Delyanne The Money Coach, for tips on how to strike a balance between the two. Barros grew her own net worth to $1.05 million, at the time of writing this article, and is taking steps to retire early and retire her mother.
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“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 be freaking out about something you don’t need to freak out about.”
Further, Barros says that many adult children don’t even know how much money their parents make, whether their parents are close to paying off 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 kinds of debt they have left), whether or not they have a pension plan and when they hope to enter retirement.
You might realize that your parents are actually more well-equipped to sustain themselves in retirement than you think they are. And if the outcome of the conversation helps you realize that your parents could still need your help, there are some ways you can assist them while still planning for your own future.
Supplemental income — like Social Security distributions, rental income, cash from a life insurance policy and dividend income from stocks — can help you avoid pulling too much cash from your savings and investments in retirement. This way, your savings and investments can last you a little bit longer. It’s worth talking to your parents about what supplemental income options they plan to use.
On average, Americans receive $1,658 per 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 input information on their tax filing status, current income and desired retirement year. Remember this is just a rough estimate and it may not actually be what your parents receive.
Depending on your parents’ expenses, a combination of these supplemental income sources could be enough to almost completely cover your parents’ monthly expenses in retirement.
Before you can begin assisting your parents, you need to make sure that you’re comfortable with your own budget, which includes covering your needs, wants and debts. This can help you figure out how much money you can comfortably contribute to assist your parents.
If you’ve never seriously considered what your monthly expenses look like, it can be helpful to use an app like Mint or YNAB (You Need A Budget) to track where your money goes so you can see how much you spend and how much you have left over each month. From there, you can decide how much you can afford to either give to your parents or save on your parents’ behalf.
Keep in mind that helping your parents retire may not always mean covering 100% of their expenses out of your own pocket. You might find that the best way to balance assisting your parents and saving for your own future is to provide smaller monetary contributions, like paying for their Wi-Fi and utilities or covering their monthly grocery bill.
Your employer-sponsored 401(k) account is one of the simplest ways to start saving for your own future. With a 401(k), a portion of every paycheck is automatically deducted and invested into your account (some employers even match your contributions so your balance grows even faster).
The money you contribute is pre-tax, which means it’s already invested before your paycheck hits your bank account so you don’t even miss it. If you’re having a hard time splitting your paycheck between purchases and savings, your 401(k) account can take away the hassle. So even if, after taking care of 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 been contributing to your 401(k) account.
Barros credits her 401(k) account as one really important way she was able 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 although I wasn’t putting in much, I was still investing consistently,” she explains. “I would increase my contribution rate every single year as my salary increased.”
Additionally, on top of your 401(k) you could contribute an additional $6,000 a year by opening up a traditional IRA or Roth IRA. A Roth IRA is a great tool when it comes to saving for retirement since you can contribute after-tax money that gets invested, grows tax-free over time and can be withdrawn without paying taxes.
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Shouldering the burden of retiring your parents on your own can place a lot of additional financial and mental pressure 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 make monthly contributions to a family emergency fund that your parents can use if they need additional money for retirement one year. Or, perhaps you set up a system where you’ll cover your parents’ utilities and grocery bill if your siblings send them some cash for other expenses each month.
One other thing that could work if you, your siblings and your parents don’t live too far away from each other is having your parents live with you for half the year and then live with your siblings for the other half. This could help your parents avoid having to spend a lot of money on housing in retirement (if they don’t mind going between homes every six months), and if you have young children of your own, you could save on childcare by having your parents assist with looking after them. Keep in mind, though, that this approach may not be ideal for everyone since it is a much bigger financial commitment.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.