As you create your own saving and investing plan for retirement, you likely ask yourself questions such as: How much do I need to save? What kind of lifestyle do I want to be able to support in retirement? If you have children, your planning process includes considering whether or not paying for college or weddings would compete with your retirement savings. There's another consideration, however, that many people overlook.
As you create your own saving and investing plan for retirement, you likely ask yourself questions such as: How much do I need to save? What kind of lifestyle do I want to be able to support in retirement?
If you have children, your planning process includes considering whether or not paying for college or weddings would compete with your retirement savings. As people live longer, caring for aging parents is becoming more and more common.
Currently, over 42 million Americans provide care for an aging parent or relative. You may find yourself in the same situation at some point, and it can take a costly toll on your retirement strategy, especially if your parents haven't done some advance planning of their own.
Here are four mistakes you can help your parents avoid as they create a financial plan for their golden years:
Mistake 1: Not having a financial plan for retirement. Having a financial plan is akin to having a road map. If your parents have a map, they can deviate from their route and still get where they want to go. They can take a shortcut, knowing it's a back road that could be bumpier. A financial plan, like a road map, doesn't guarantee a perfect retirement (or a perfect road trip). But it's a necessary tool to keep your parents on track. It will help them understand where they can and cannot go. They'll be able to see how financial decisions will affect their ability to go places and do things now and in the future, and it hopefully will reduce the impact of those decisions upon your finances. So if they don't already have a financial plan to see them through retirement, encourage them to put one together as soon as possible.
Mistake 2: Not planning for the worst-case scenario. You may think your parents will remain healthy, but they need to have saved enough to live if either of them develops an injury or illness that requires expensive care. Even if your mom says she'll never make it past 80 because no one in her family has, she should have enough money to cover several years beyond that, because modern medicine has some great tricks up its sleeve. Cars break down, roofs develop leaks, furnaces break, and mom or dad likely can't get a well-paid job during retirement to pay for unexpected expenses. Their budget and investing decisions should be made with worst-case scenarios in mind.
Mistake 3: Not remaining invested. You or your parents may think it's best to leave the world of investing and move to cash during retirement in order to avoid all investment risks. Every situation is different, but remaining invested in a conservative blend of cash, bonds and equities can help many retirees deal with inflation and continue to grow their assets. Keeping pace with inflation is important, so if your mom or dad retires with an amount of money that should provide their desired monthly income during retirement, find out whether they've planned to increase that income over time. Their mix of investments should position them to grow their assets enough to allow for cost-of-living adjustments.
Mistake 4: Forgetting there's more to life. If you've helped meticulously plan your parents' retirement budget to keep them healthy, warm and well-fed, don't forget they want to have fun during their golden years! The chance to explore new hobbies and lifelong interests is a brilliant aspect of retirement. The budget doesn't need to be huge, but be sure your parents have enough money set aside to have some fun during retirement. That will help lessen any urges you may have to spend part of your nest egg to send them on that dream vacation. Nobody can predict what the future will hold, and you may still find yourself having to provide some level of financial support to your parents when they are older. But the more advance planning they can do, the better prepared they will be to carry that responsibility themselves when the time comes.