The median retirement account balance for Boomers that are 56 to 61 years old is about $25k. This is abysmally low. Using a 4% safe withdrawal rate this will only produce $1,000 per year of retirement income, or $83 per month. Not much to live off of in the golden years.
The news loves picking on millennials who are still living at home, and freeloading off their parents. But what they don’t point out is that those kids will potentially have to help fund their parents’ retirement as they are woefully under prepared.
Defined benefit plans (pension plans) have mostly disappeared for employees working outside of government careers. This has put the onus on the individual to save for their own retirement. The problem is, people are horrible at saving. The US savings rate has hovered around 5% per year lately.
Studies have found that employees who are opted into the 401k plan when they begin employment contribute more than those who are not. Only 10% of employees end up opting out of their 401k plan if they are automatically opted in. Leave it to employees to opt themselves in? It just isn’t going to happen.
Now, I’m not a trained psychologist that has studied Boomers and their relationship with money, so I won’t try to go into why they are terrible at saving for retirement. But what does it mean for millennials whose parents are woefully under saved for retirement? It means the burden may fall onto them.
However awkward of a subject it may be, millennials need to start having money conversations with their parents as soon as possible. For some, these will be easier conversations because either (1) their parents are on track for a healthy financial retirement, or (2) their parents are open and willing to discuss retirement plans with their children to ensure everyone is on the same page. However, for whatever reason, in some households money topics are 100% off the table between children and their parents. There could be many reasons for this. Some parents may think it’s not their children’s business. Or maybe they are too proud to ask for help.
Unfortunately the outcome may be that a 30-something year old finds out (right after they finished paying off their student loans) that their parents are no longer able to work and will have to subsist on social security and whatever support their children are willing and able to give them. Personally I feel that if eventually someone knows they will need help from their family, they should at least let them know ahead of time so they can chart the correct course in their own lives to ensure they are able to assist, if they feel the need to. There is no shame in asking for help. We all can’t know everything about everything.
At the very least offer to talk to your parents about their retirement, or if you are a parent, be open with your children. Discuss retirement plans, timeline, and ask if they would like any help figuring it all out. In the end, the worse a parent can say is they don’t need help. If this is the case, you are no worse off than you were before. Moreover, maybe you’ll help make discussing retirement with family a little less taboo in the process.
5 thoughts on “Helping the Boomers”
Good post Ferv. As an Oldster, I fall into that 56-61 year old group and can attest that most of my peers are not ready for retirement. I have one co-worker who is retiring at 75 and only because she is just not physically able to continue. I don’t know what her kids and grandkids will do without her income. It is a sad circumstance.
I totally agree that parents and children should talk regularly about money. Not only to enlighten the kids about how the ‘rents’ are going to get along, but also to allow them to learn from the successes and failures of their folks. There is a lot to be learned by someone who is on the front end of the great adventure by looking at what the oldsters would have done differently. We have a 15 year old and regularly have discussions with her about money. A portion of her allowance is invested in the market and she can see the value of regular investing. We also talk college and the costs associated with it. I hope these discussions will continue into the type you describe in your post. I think that would be most helpful all around.
Good point that you can learn from the successes and failures of your parents. Everything is a learning opportunity!
My step-dad used to joke that “we were his retirement plan” referring to Mrs. SSC and I. We quickly corrected him each time that there was no way he’s moving in with us and he should be planning on anything besides that as an option, lol. Even though he’s gone now, my mom is in that boat with her retirement and I think living with one of us kids is her main retirement plan. It won’t be in our house, but it seems like my brother is taking that responsibility so, we’ll avoid that whole situation and conversation altogether. We’ve tried helping her in the past with retirement accounts, lump sums and life insurance payouts, but it ends up getting spent beforeany of it can go into an account. You can lead a horse to water…
While we take into account that Mrs. SSC’s parent(s) could be living with us at some point in the future, they will be fully funded from their own retirement plan, so it won’t be any financial stress. Other kinds of stress, sure, but nothing related to money.
“Other kinds of stress” – haha. It’s great that you guys are open with your parents about the possible scenarios.
Initiating “the talk” with your parents is hard since most aging parents aren’t too welcoming when talking about money, especially about their finances. You have to do this at some point so instead of putting it off, start talking to your parents early so you can assist them in any way that will have a big impact in their lives.
One area that adult children should highlight is healthcare and long term care costs. According to a recent study by Fidelity Investments, a healthy 65-year old couple that will retire this year will need $280,000 to cover their healthcare expenses. The worst part is that long term care costs are not included in that figure. This only shows that discussing care expenses and buying smart insurance coverage like long term care insurance is imperative to have a comfortable and debt-free retirement.