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.