Build a plan with your parents for their retirement years
While not everyone wants to restore vintage race cars or sail the Caribbean when they retire, there are certain milestones that people will face as they approach and enter retirement. It’s important to talk to your parents about money and care, and to start the conversation well before serious decisions need to be made.
Here’s a checklist of the key financial issues and elements to consider for each stage as your parent age. Help your parents prepare ahead of time — so that you can all look forward to their retirement years.
Pre-retirement: 50-60 years old
Between the ages of 50-60 your parents might already be retired or approaching retirement and preparing to enjoy a full life. During this stage it’s important to gather information, locate key resources, and help your parents prepare with these steps:
- Develop a financial strategy: Your parents should speak with a financial professional that understands the nuances of insurance, retirement planning, health care, Social Security, tax deductions, annuities, long-term care, and legacy planning to map out their financial future.
- Have the “money talk”: You and your siblings should speak with your parents and talk through their financial plan and their preferences for long-term care, and share important information about accounts and financial records.
- Ensure income doesn’t stop in retirement: Add up all sources of income, including pensions, 401(k)s, IRAs, annuities, rentals, business assets, or sale of a home. Learn about the different types of guaranteed and non-guaranteed income sources in retirement. To estimate Social Security, visit www.ssa.gov. Help your parents consider their expenses and understand their retirement budget.
- Make important decisions about money and your parents’ care: Your parents should assign power of attorney, elect a health care proxy, and write a will or — if one is already written — ensure that it’s up-to-date and accurate.
Early retirement: 60-70 years old
When your parents are between the ages of 60-70, they’re likely already retired and may be exploring the world or gaining fulfillment in other ways. Critical decisions are made in this stage regarding timing of retirement, claiming Social Security, and Medicare.
- Consider when to claim Social Security: If your parents are eligible for Social Security benefits, they’ll be able to apply at age 62 but waiting to apply can mean larger payments. For example, waiting until age 70 can permanently increase your monthly benefit amount by 53%.1
- Medicare eligibility: Beginning at age 65, your parents will be eligible for Medicare. Your parents should know how to apply, what’s covered, what isn’t, and how to purchase extra coverage. Missing the deadline or choosing incorrectly could have long-term financial impacts. Learn more at www.medicare.gov.
- Adjust budgets: At this stage, your parents may have a fixed income and should revisit their budget, adjust their spending, or consider downsizing. A reverse mortgage, which allows homeowners to use mortgage equity as income, may be an option.
- Confirm legacy planning: Your parents should research and understand how estate and inheritance taxes could affect their assets. Talk to them to understand what they want to protect should anything happen to them and to discuss their wishes for when they’re gone.
Mid-retirement: 70-80 years old
In mid-retirement, there’s often still a good amount of independence. However, as people age, it’s a pivotal time to ensure that they are financially prepared and to plan for any larger medical issues that could arise.
- Begin mandatory withdrawals from retirement accounts: Known as Required Minimum Distributions (RMDs), your parents will need to begin mandatory withdrawals of retirement accounts starting at age 70 ½ for traditional IRAs, 403(b)s, and other tax-advantaged retirement savings plans, except for Roth IRAs.2 Speaking to a tax specialist about RMDs can help determine the appropriate income and tax strategy.
- Determine housing plans: Research and choose retirement homes with future care needs kept in mind.
- Monitor finances: You, a sibling, or a third party may need to assist with or take over your parents’ finances. If your parents are losing their mental abilities, consult a doctor. You may need to use power of attorney at this point.
- Plan for assisted care: Depending on your parents’ medical history, or in the case of unplanned circumstances, your parents may require additional care. Some families opt to have a family member live with their parents and often parental income can offset caretaking expenses.
Later retirement: 80+ years old
Around age 80 and onward, your parents will begin to adjust to life in their later years. Be prepared for previously made plans to be acted upon and consider the following:
- Affirm your parents’ wishes for assisted living or long-term medical care: Be sure to include additional costs such as transportation.
- Consider selling property: At this point, your parents may consider letting go of property, such as a house or a car. You, your parents, and your siblings should agree beforehand on who is keeping what and what should be sold.
- Plan for emergencies: Whether it’s an in-home monitor, a wearable device, or neighbors checking on your parents — it’s important to safeguard their living space and develop a plan of action in the event of an unexpected accident.
By planning early, you’ll be prepared for transitions and can have a contingency plan for any unexpected changes that may arise during your parents’ retirement. Reference these key steps periodically to help make your parents’ later years as rich and rewarding as possible.