Ask the Money Coach: Are My Parents Financially Prepared for Retirement? And What do I do if Not?

by Kaitlyn Ranze

Let’s face it. Most people don’t have access to a financial advisor. And if they do, those financial advisors may not consider the human side of managing money – like how spending, saving, and stressing about it actually makes us feel.

Cue the Nav.it money coaches.* We’ve long been helping users in the app, but now you can write into our money coaches.

Nav.it money coaches* answer questions like what to do if your parents aren’t prepared for retirement.

Dear Money Coach,

In this retirement gif, Jack says he doesn't want to adult anymore.

My parents (62f and 67m) have never been very good with money. My dad is retired and getting social security, but I am pretty sure he has no other savings, and I found out recently that my mother has almost no retirement savings (maybe a couple thousand in 401k and no IRA).

I’m not 100% positive of their income because I’ll admit I’m not familiar with how social security works but I know my dad has been collecting for almost 2 years now.

I’ve tried to have money conversations with my parents in the past, but they’ve never gone well.

I can’t ask them what their plans are. My mom gets easily stressed out. And my dad is the type that’s too proud to discuss money with his children. I only know what I know now from years of mildly prodding and recently assisting my mother with managing her insurance and 401k online. While I have a rough idea of how much they both make, I honestly have no idea how they’re currently making ends meet. I was always under the impression that they had some kind of plan but now I’m thinking the plan is to have either me or my brother take care of them when they’re no longer able to work.

I’m not sure what else is relevant info. The major issues with their situation is that I’m scared to death of being their sole caretaker and not being able to provide a good quality of life for their golden years.

How do I find out if my parents are financially prepared for retirement?

And what do I do if they’re not prepared?

Sincerely,

A Stressed Out Daughter in the Mid-West

Dear Wonderful But Stressed Out Daughter in the Mid-West,

It’s no secret that many Americans are not prepared for retirement. In fact, according to a recent study by the Employee Benefit Research Institute, only about one in four workers feel very confident that they will have enough money saved to last throughout their retirement years.

Most people haven’t given much thought to their parents’ retirement savings. After all, they’re the ones who are supposed to be saving for their golden years, not you. Props to you!

First things first: talking about your parents’ retirement plans

In this talking to your parents gif, the main character laments that he already told his mom something but she ignored it.

The first thing you need to do is have a conversation with your parents about their retirement plans. “Pretty sure” is a long distance from knowing exactly what they have. So, start by finding out how much money they have saved and what their monthly expenses are. Once you have a clear picture of their financial situation, you can start to develop a plan to help them.

How to talk to your parents about money and retirement

It’s no secret that money is one of the most taboo subjects in our society. We don’t like to talk about it, we don’t like to think about it, and we definitely don’t like to ask for help with it. But when it comes to our parents and their retirement, we may not have a choice.

This can be a difficult conversation, but it’s important to make sure they’re on track.

Here are some tips for how to approach talking about finances with your retirement-age parents.

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1. Be respectful. This is a sensitive topic, so it’s important to be respectful of your parents’ wishes and feelings. Avoid judgement or criticism, and try to keep an open mind.

2. Be prepared. Before you start the conversation, make sure you’re prepared with information and questions. Do some research on retirement planning so you can understand their options and offer helpful advice. We’ll do our best here to help you be prepared but be sure to click the links to external resources.

3. Listen more than you speak. This isn’t a time to lecture your parents or tell them what they should do. Instead, let them know you’re concerned and ask them about their plans. Listen to what they have to say and offer understanding and support.

4. Offer help. If your parents are struggling to make ends meet or don’t have a retirement plan in place, offer to help. This could involve helping them budget or providing financial support (but only if you’re able).

5. Seek professional help. If your parents are resistant to discussing their finances or you’re not sure how to best help them, consider seeking professional advice. A financial planner can offer expert guidance on retirement planning and other money matters.

Talking to your parents about money can be a difficult conversation, but it’s an important one. By being respectful, prepared, and understanding, you can help them become more financially prepared for retirement.

What is being financially prepared for retirement

We’ve been using the phrase “financially prepared for retirement” but what does that actually mean? Retirement planning is a complex and multi-faceted process, but there are some key things that everyone should do to be financially prepared for retirement.

First, they need to make sure they have enough savings.

This includes both retirement account balances and any other savings they have outside of retirement accounts. How much they need to save will depend on individual circumstances. As a general rule of thumb you should aim to have at least 10 times your annual salary saved by the time you retire.

If they don’t have this much, DON’T FREAK OUT YET. We’ll talk about what to do if they’re short on savings in a bit. For now, let’s stick to the fundamentals of planning for retirement.

Second, make sure their investment portfolio is diversified.

You can leave this up to the pros, but this means having a mix of different types of investments, such as stocks, bonds, real estate, and cash equivalents. Having a diversified portfolio helps keep them protected from losses in any one particular asset class.

Third, you need to make sure you have a good understanding of their retirement benefits.

Retirement can be a tough time for many people. The loss of a steady income, the increased cost of living, and the need to downsize lifestyle can all take their toll. But there are some retirement benefits that can help ease the transition.

Here are just a few:

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Social Security: This government-sponsored program provides financial assistance to retired Americans, funded by payroll taxes from American workers.

How does Social Security work?

Social Security benefits are based on your work history and earnings. When you retire, you will receive a monthly check from the Social Security Administration (SSA) that is based on your earnings history.

Medicare: This health insurance program for seniors covers a range of medical expenses, from doctor visits to hospital stays.

Discounts: Many retailers and businesses offer discounts to seniors. This could include everything from groceries to travel. One of our favorite resources for discounts is AARP.

Housing assistance: There are a number of programs that can help seniors with the cost of housing, whether it’s help with mortgage payments or assistance in finding affordable housing.

While these benefits can be a big help, it’s important to remember that they’re not a cure-all. Retirement is still a major life change and it can be a challenge to adjust. But with a little planning and support, it can be a time of new beginnings.

Fourth, make sure there’s a plan for health care in retirement.

This includes things like insurance coverage and long-term care planning. We’ll tackle the most common form of insurance for retirement-age Americans.

As we mentioned previously, Medicare is health insurance that provides coverage for seniors and disabled Americans.

Here’s a breakdown of the basics of Medicare to help your parents make the best decisions for retirement planning.

Let’s dive in.

First, what is Medicare?

Medicare is a federally-funded health insurance program that provides coverage for seniors and disabled Americans. It consists of four parts.

What does Medicare cover?

Medicare Part A covers inpatient hospital care, skilled nursing facility care, hospice care, and home health care. Part B covers doctor visits, preventive services, outpatient care, and some home health care. While parts A and B are offered through Medicare, Part C is offered through private insurers and covers all of Part A and Part B, as well as some additional benefits like dental, vision, and prescription drug coverage. Part D, which is also offered through private insurers, covers prescription drugs.

How much does Medicare cost?

Most people don’t pay a monthly premium for Part A (sometimes called “premium-free Part A“). If you are not already receiving Social Security benefits, you will need to pay a monthly premium for Part B coverage. The standard Part B premium is $170.10 per month while the Part B deductible was $233 in 2022. You may also have to pay a deductible and coinsurance for some services.

What are the drawbacks of Medicare?

Medicare does not cover everything, and you may still have out-of-pocket costs for some services. Additionally, Medicare Part B premiums can increase each year, and you may have to pay a higher premium if you do not enroll in Part B when you first become eligible.

How do your parents sign up for Medicare?

If they are already receiving Social Security benefits, they will be automatically enrolled in Medicare Part A and Part B. If you are not receiving Social Security benefits, you can sign up for Medicare online at http://www.medicare.gov or by calling 1-800-MEDICARE (1-800-633-4227).

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Finally, make sure they have a plan for their estate.

This includes things like wills, trusts, advanced directives, and powers of attorney.

Making sure you are financially prepared for retirement is a complex process, but it is important to make sure you have a solid plan in place. Taking the time to understand the different aspects of retirement planning will help to ensure that you are able to enjoy a comfortable retirement.

But what should adult children do if their parents are coming up short on a comfortable retirement?

There are plenty of things you can do to support your parents if they can’t afford retirement.

The first step is to assess how much you can afford to give. This may mean making some sacrifices of your own. If you have the desire to help them and can afford to give them financial support, go ahead. Just be sure to set both financial and emotional boundaries limits with that money. For instance, you might give them a monthly allowance, but that doesn’t mean you get to control what they do with it unless you set that boundary upfront.

Second, there is no shame in not being able to help as much as you want. While there may be some cultural pressures, how much you can earn in a month is finite. Flex your career plans and negotiate your salary, but remember your limits.

Also, consider alternative financial measures that would support them. Is it sustainable for you to cohabitate? More and more American families are shifting to intergenerational living.

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If you’re barely making ends meet, there are still plenty of other ways you can help your parents become more financially prepared for retirement.

Consider what practical things you can do to help them. This could include helping them with budgeting, getting them discounts on essential expenses, or helping them to downsize their home. Whatever you can do to ease their financial burdens will be appreciated.

Finally, don’t forget the emotional support you can offer. Just being there for your parents and listening to their concerns can be a big help. Let them know that you love them and that you’re there for them – no matter what.

No matter what you decide to do, the most important starts at the very beginning: Have an open and honest conversation with your parents about their retirement plans. Only then can you develop a plan that will work for everyone involved.

-Kaitlyn

*Just remember, we are NOT your financial advisors, tax advisors, or legal advisors by simply accessing this site. Everything that you read or interact with on the site is for informational purposes only. You should contact a professional before taking action.