Many loving parents and grandparents make the mistake of giving priority to paying for their children’s or grandchildren’s educations over the funding of their own retirement. At first blush that may sound like the generous priority, but it subjects the entire family to financial risk.
Hopefully you have funded your retirement through savings, investing and possibly the blessing of an inheritance. If your retirement is secure, then by all means helping pay for educational expenses of other family members is a wonderful gift. Education is still the best investment a family can make. BUT, if your retirement is not secure, funding other people’s expenses will further compromise your future. Moreover, if your financial future is jeopardized, you may become a liability for those very same family members you tried to help.
Do the Math
In our previous article, we provided a simple calculation to help you determine how much you will need to secure your retirement. Be sure to take advantage of all retirement plans and investment options you have available. The more secure your financial picture is, the stronger and longer you will be able to help family members and others.
If you have to choose between funding your retirement and your children’s / grandchildren’s educations, ALWAYS fund your retirement first. Even in the extreme case where your child / grandchild has to take out a student loan to fund their college or post-high school education expenses, if you are financially strong you can help them repay the loan in the future. But if you compromise your financial security, then when financial surprises occur you will be the one looking to others for assistance. This can happen at a time when your children have children of their own and, with those expenses, may not have the discretionary funds to help an elderly parent.
If you have to choose between funding your retirement and your children’s / grandchildren’s educations, ALWAYS fund your retirement first.
Our culture, right or wrong, does not consider taking care of aging parents as a responsibility. Some families are able to react to such crises when they occur, but rarely is it planned for. Most Americans are focused on getting ahead and improving their own lives, not on funding their parents’ lives. Compounding this fact is that in today’s world, members of the millennial generation have all but given up hope that they will live as well as their parents and grandparents. This is the first generation that does not EXPECT to live better than previous generations. That means they are not preparing for funding expenses of generations they feel had it better than them!
Plan for Health Costs
In the last years of life, when health deteriorates and you may need help, an assisted-living arrangement, memory care, or skilled nursing, it is easy to spend $100,000 a year (or $200,000 for a couple) for health and personal care needs. Given that reality, budgeting $1million for the last five to ten years of life is not excessive.
Medical expenses, and related expenses such as in-home care, are usually unexpected and can be very expensive. While a client was in a rehabilitation facility after a hospital stay, he decided to get care (and company) for his wife who was alone at home. The month of such “related medical expense” cost $15,000.00. I can assure you no such expense was ever in their retirement budget. In generations past, family members would have provided the care and company his wife needed, but in today’s world where families have spread out around the country, if not world, this care is often provided by non-family members who expect to be compensated. Monthly costs of $5,000.00+ are not unusual.
Similarly, some clients are taking experimental drugs for fighting disease, typically cancer. The cost of these drugs is not covered by Medicare and can easily exceed $10,000.00 per month. In addition, Alzheimer’s affects more than 10% of people over the age of 65, and care is expensive. My 90-year-old parents have weekly doctor appointments. Between their general practitioner, heart specialist, kidney specialist, and physical therapist, at least one of them is seeing someone for their health care every week.
Adding to all of this is the impact of inflation. People now retiring can expect to live 30 years in retirement. Inflation will more than double the cost of living — and with it — the costs of health care — over that time span.
If you are prudent with your finances, and place your needs first, you will always be able to contribute to your loved ones.