Nanny to Mommy

You are probably occupied with taking care of your children, seeing them through college and into careers, and starting their own families. These wonderful years may come to an end with a sudden shock when parents realize that they have not planned adequately for their retirements. With there being such a variety of pension plans available, choosing the right one can be a task, you may be thinking what's the difference between an ira vs 401k plan? So, it's vital you do thorough research about the plans to find the most suitable for you. Here we take a realistic and in-depth look at issues around retirement and planning for it. For example, is the onus on adult children to support parents who have not sufficiently prepared themselves for financial independence later in life? We also explore what can be done to get your retirement savings on track, like considering retirement plan consultants.

There are many aspects to this question, the first being legality. This is defined by filial responsibility laws, and 27 US states have this legislation in place. The amount of assistance required varies and may be decided by a judge.

Secondly, is there a moral obligation to take care of your elderly parents? Of course, answering this question can only be left to each person to decide for themselves. Some parents are brought into their children’s homes, and where this is possible, it can allow both parties to maximize their time together while the parents are still alive. But not everybody’s circumstances permit this. Similarly, some parents and children may not fancy this option. It may also be necessary to get siblings to agree on rotations or shared expenses.

Thirdly, what do elderly parents want? Many of them want to remain in their own homes and retain their independence and lifestyles for as long as possible. However, deteriorating health, a fall, an inability to keep up with daily chores, or financial reasons could make this unsustainable.

Selling their home may provide the elderly person with additional income to enable them to move to a retirement community of their choice. If you own a second property, such as a holiday home, consider swapping it for a property with high rental income potential. This will provide you with another source of income and/or investment money to put towards your retirement.

The sad truth is that if you have not saved up for retirement, your choices are more limited than someone who has created and stuck to a comprehensive retirement plan. As the average American lives for twenty or more years after retirement, this is a long period you need to make financial arrangements for.

Although less than one percent of Americans live in care institutions, they made up a third of those who died from covid. Additionally, many nurses were affected, and their ranks were depleted. This reduces the capacity of retirement homes to provide adequately for their residents.

But the pandemic is not the only problem. While statistics indicate that 76% of citizens over 50 years of age want to remain at home, only 46% believe this is possible for them.

Medicaid may pay the costs of community and care facilities, but this is dependent on your financial situation. Usually, only the most destitute qualify. Even then, they only cover about 75% of costs, leaving nursing homes with a shortfall to provide the best possible care.

Community options vary widely. At the top end, you get lovely homes at places like St. Anne’s Retirement Community, where the development of yet more luxury apartments continues. They have apartments, cottages, and villas for independent living. For their residents who need more support, there are various care services such as rehabilitation and therapy, and memory support, and they pride themselves on being a Continuing Care Retirement Community.

It is worth checking out a few communities in the area you want to stay well ahead of retirement.

Next, we look at your financial planning.

While social security counts towards retirement savings, it will only contribute 40% of what you were earning while working. However, there are a few ways to maximize what you get out of it.

Taking a part-time job or other means to supplement your lifetime earnings can add to the final amount you get. This may be necessary if you have some gap years in your employment history as this will reduce your annual average amount quite substantially.

You can also delay taking retirement at the earliest age of 62, or even beyond the 66 or 67 normal retirement age to 70. This will earn you an extra 8% for each delayed year. Married couples can delay the benefits of one of them to this age. Then they will also benefit from the additional 8% gained.

Cost of living adjustments (COLA) benefits increased 5.9% for many Americans in 2022 and are expected to be higher in 2023. But this is just to mitigate inflation although it does add to the retirement amount.

Many companies in America offer their employees a 401(k) plan. This is a qualified retirement option that carries IRS special tax benefits. Qualified means it is either a defined benefit, like a pension plan, or a defined contribution. The latter applies to a 401(k). Employers generally contribute an equal or lesser amount than the employee up to a predefined limit. ERISA, the Employee Retirement Income Security Act, sets guidelines and regulations to protect employees participating in these retirement plans. It ensures that employers adhere to fiduciary responsibilities and provides safeguards for employees' funds and benefits. In addition, mitigating liability through ERISA compliance is crucial for employers as it helps minimize legal risks associated with the administration of retirement plans and enhances the overall financial security for employees. Compliance with ERISA regulations also promotes transparency and accountability in managing the 401(k) plans.

A 401(k) plan is investment-based. The total balance depends on how those investments perform. As with all investments, there is some risk. Tax only becomes payable upon withdrawal.

The Roth 401(k) Variation allows the employee to pay tax with their contributions so that no tax is due at retirement.

Social security and a 401(k) plan aside, it is essential to have some form of savings towards a retirement fund. The younger you start the more it will grow. This is because of compound growth.

As an example, a monthly contribution of $100 at only 22 years of age and keeping up with payments until retirement at 67 years of age will amount to a flat amount of $54,000. If the average annual return on your investment is 7%, you will have saved $380,000 at retirement.

If you only start saving in your early 40s, you will need to save $500 a month to reach the same goal.

As your employment earnings grow, you should increase this incrementally over the years.

It is recommended, whatever your current age, that you dedicate a Saturday afternoon to retirement planning. Ahead of this session, read up on the subject.

There are many sources that provide information and guidelines for retirement planning. Although most of them repeat what we have already covered, you may glean some additional insights.

Your parents, aunts and uncles, and other elderly people you know have had a head start on preparing for their retirement. Find out from them what worked and what went wrong with their retirement plans.

Use this calculator to assess your social security situation. The government also provides these tips on preparing for retirement. If you have stock or investments or are considering them, here is a useful guide and calculator.

Don’t let life pass you by without making provision for your retirement; be sure of where you stand now so that you can focus on living life to the fullest.