Your parents could put your retirement at risk if they haven’t taken care of themselves.
Middle-aged individuals have a lot of responsibilities today. Their kids are growing up and entering their teen years, while their parents are requiring more and more attention due to medical and general health concerns.
Those in this age group who are caring for both their children and parents are known as the “sandwich generation.” Even if you aren’t part of this group right now, caring for your aging parents could be a looming responsibility on the horizon.
If you’re lucky, your parents are still thriving physically, mentally and financially. But there likely will come a time when one or both of your parents will need help in one or more of these capacities. If you’re still supporting your own children when this happens and/or are completely unprepared, your own financial and mental health could be jeopardized.
Three Reasons Your Parents May Put Your Retirement At Risk
There are approximately 43 million retirees in the U.S., and unfortunately many of them are putting their own adult children’s future retirements at risk. Take a look at the average retirement account figures to see for yourself how screwed many people are.
For many in the sandwich generation, it is often not obvious or apparent that their aging parents might be harming them until it’s too late. To help you avoid getting caught in that type of pitfall, watch out for the following three ways your parents’ aging could end up hurting your future and start taking steps now to protect it.
1) Retirement Funds are Shrinking
The infamous golden parachute isn’t at all what it used to be. Retirees of years past often enjoyed multiple sources of income in retirement, including a pension, a 401(k), and a Social Security check each month. Today, pensions are rare, Social Security is underfunded, and most retirees have not made up the slack with their 401(k) accounts.
Medical related costs have risen over 600% since 1978 and there doesn’t seem to be any significant relief in sight. You’ve probably seen your healthcare premiums increase first hand alongside drug costs. I have and it’s nauseating. Thus, it’s no surprise that the combination of skimpy retirement savings and inflating healthcare costs have made the lives of baby boomers increasingly difficult, so much so that many are attempting to delay their retirement to make up for it.
Retirement Age Expectations
As the above poll shows, an increasing number of Americans expect to retire after age 65 largely due to a lack of retirement funds. One of the results for delayed retirement is a bottleneck for employment positions for younger generations.
Meanwhile, although some might expect to work longer in their older years, it might not be physically possible. This is where adult children must step in to cover additional expenses. And that isn’t always easy, especially if your siblings aren’t willing or able to help you with pitching in.
The above table also shows how income and age are affecting people’s retirement plans. I can’t imagine physically working until age 70, can you? If these data points don’t motivate you to start saving more for your retirement now, I don’t know what will.
2) Long-term Care May Be Assured By You, Not Your Parents
Figuring out long-term care plans is not a conversation anyone wants to have. It certainly is a challenge when a loved one needs to be admitted into long-term care and it happens more often than you may realize. Close to 70% of people turning age 65 will need long-term care at some point in their lives.
Your parents or close relative may require full-time assistance because of a mental disease, a failing physical body, or because it’s simply no longer safe for them to be living on their own. Whatever the case may be, it’s going to be an emotional and stressful time.
And for this reason, many people are so distraught that they don’t realize that when they sign a contract to admit their parents into a facility, they are actually signing surety for their parents, should they run out of money and can no longer pay the bills. This can put your financial well-being at risk down the road.
Speak To A Professional
So instead of simply signing your name in place of your parents (who might not be able to sign for themselves), check with a lawyer on what all of your options are. It could be in your best interest to actually write your parents’ names and then add “by [your name] as power of attorney.”
Assuming you have legal control of their funds, this places the financial responsibility on your parents instead of you. In other words, you’d be able to make payments with your parents’ money and would not be obligated to cover the difference should their funds run out. Not knowing puts your retirement at risk.
Meanwhile, the average long-term care cost in the United States is roughly $225 per day, or $6,844 per month, for a semi-private room in a nursing home according. Consider checking with your insurance company for the latest cost of long-term care insurance if your parents might need extra care and neither of you can afford such an expense.
3) Risks Of Career Delays And Missing Advancement Opportunities
Take into consideration whether or not you may decide to put your career on hold in order to take care of your ailing parents. Elder care can require a lot of hours, which may be too challenging to juggle with the demands of a full-time job.
Your parents may also strongly prefer to be cared for by you or one of your siblings instead of nurses and hospice workers. Can you blame them? In some circumstances, taking a temporary leave of absence from work could suffice and may not cause much of an impact on your career development. However, if taking extended leave or hiring help aren’t possible, you can at least do your best to use weekends, evenings, and use vacation days here and there to help provide some relief.
But before deciding to leave a job to care for your parents, keep in mind there are risks associated with putting a career on hold, such as missing out on promotions and raises. Depending on your location, industry, and work experience, it may also be a challenge to re-enter the workforce after a gap in employment. And remember, there are laws to help protect employees such as the Family And Medical Leave Act, which provides protection for eligible employees to take unpaid, job-protected leave without losing group health insurance coverage.
Currently, FMLA covers 12 workweeks of leave per year to care for a parent with a serious health condition. If you’re still inclined to leave your job, don’t quit on the spot, work out an arrangement to get laid off instead.
Don’t Put Your Retirement At Risk, Prepare Now
It can certainly be uncomfortable to talk with your parents about money and their long-term care plans, but these conversations are important. Consider taking these steps to prepare for the future:
1) Plan for your parents’ care by designating a power of attorney.
2) Reach out to a financial advisor for a free consultation. If you don’t want to talk to a financial advisor, talk to a trusted friend who has gone through the process of taking care of their parents. It’s important to talk to someone about your financial plans or create a financial plan if you don’t have one already.
3) Speak to an insurance representative about various insurance options. Understand the costs and benefits of long-term care.
4) Continue saving and investing as if you are required to take care of not only yourself but your parents as well.
5) Sign up for a free personal finance app like the one from Personal Capital. Personal Capital lets you track your net worth, manage your cash flow, analyze your investment asset allocation, and run a realistic retirement scenario to see if you are on track, no matter what your age.
No one can predict the exact amount of money they will need for retirement. However, it’s always safer to end up with too much than too little. A retirement at risk is no way to live your golden years.
About the Author:
Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.