You’re too stunned to speak. But your parents aren’t unusual—up to half of all adults between the ages of 55 and 66 have no retirement savings, according to the U.S. Census Bureau. What’s next? You may be having far more retirement-focused conversations with your parents in the future. Here’s how to start.
Have a Conversation To Learn Financial Details
“Money is the number-one cause of stress and anxiety in this country,” said certified financial planner Brent Weiss in an email interview with The Balance. “People would rather talk about religion, politics, and even sex before they talk about money.” Weiss is co-founder of Facet Wealth, a nationwide financial planning service. Approaching retirement can amplify money-related emotions such as stress, anxiety, shame, and even embarrassment. “It’s important to understand how their emotions may affect some very important decisions in the near future,” Weiss said. That said, if your parents don’t have enough money saved, they’ll likely run out of funds in retirement, he explained. It’s crucial to have this conversation to help them avoid that unpleasant situation. Avoid talking down to your parents or making accusations, said Cameron Huddleston, author of “Mom and Dad, We Need to Talk: How To Have Essential Conversations With Your Parents About Their Finances.” “Don’t say, ‘Hey, Mom and Dad, I’m worried because it looks like you have a lot of debt and haven’t saved money for retirement,’ ” Huddleston suggested. If your parents feel defensive, they may resist discussion out of embarrassment. To avoid putting them on the spot, try asking how retirement planning is going (rather than how much they’ve saved), Huddleston said. Talk about your own experiences. For example, you might say, “Hey, I found this savings calculator online and realized I wasn’t saving enough for retirement,” or “I signed up for free credit counseling and found out about the debt snowball method.” You can even use indirect methods—if that’s your family communication style—such as leaving an article on the kitchen counter.
Write Out a Retirement Budget
Being proactive in planning is crucial, Weiss said. Taking a look at personal finances now, assessing necessary changes, and taking action are the most important steps your parents can take. If they’re amenable, sit down with your parents to plan a potential retirement budget. Look at their projected expenses and compare the costs where your parents live now to those in a less expensive community. Then, create a budget spreadsheet to lay out potential future retirement expenses and compare various spending strategies in retirement. Weiss suggested reviewing:
Retirement income: Estimated Social Security, pension, and income that can be generated from savings and investments, including a 401(k), IRA, Roth IRA, taxable investment account, and annuitiesLiquid retirement savings: Available sources for investing and to use for expenses and ongoing income needsMonthly expenses: Housing, health care, transportation, and food can often make up 60% to 70% of a retiree’s budget, Weiss said—but also consider the costs of insurance, personal care, travel, family support, and any debt potentially carried into retirement.
In Weiss’ 20-year career as a financial planner, he has seen many people approach budgeting the wrong way. Focusing on smaller items is much like rearranging the deck chairs on the Titanic, Weiss said. “The budget icebergs are the four main expenses that typically make up most of the expenses: housing, transportation, health care, food. Start with assessing the bigger expenses and then move to the smaller expenses.” It’s also critical to grasp whether your parents are living within their means now, before retiring—particularly if they’re planning to live on less in the future, said Michigan-based elder-law attorney Patrick Simasko. Creating a retirement budget together will likely offer an opportunity to have an honest conversation about their options and trade-offs. “Unless you are Jeff Bezos or Elon Musk, we all make trade-offs regarding our finances,” Weiss said. Discuss ways to consider improving their financial security before retirement.
Encourage Them To Minimize Debt
Paying down or paying off any outstanding debt can have a much bigger impact on your parents’ financial picture than stashing a few extra dollars in a savings account before retirement. “Getting rid of a car loan can save hundreds of dollars per month, and paying off a mortgage can save thousands,” Weiss said. Prioritize paying down high-interest debt, he suggested. “Steer parents to a credit counselor to set up credit plans, negotiate with lenders, or call medical debt call providers to request a payment plan,” Huddleston said. In the worst-case scenario, Simasko said that you may need to speak with a lawyer about bankruptcy or settling credit card debt.
Ensure Your Parents Have Retirement Accounts
Even if your parents don’t have significant savings now, it’s likely not too late for them to open and fund a retirement account, which can provide tax advantages now and later. Encourage parents to consider these retirement options.
Employer-Sponsored Plan
Contributing to a 401(k) could make your parents eligible for an employer match, which is “a great way to double their retirement savings,” Weiss said. He noted that contributing as little as 3% of their income could be enough to earn the full employer match.
Traditional or Roth IRA
“A Roth IRA is likely a good choice, as withdrawals in retirement can be tax-free and aren’t counted when determining how much of their Social Security benefits will be subject to taxes,” Weiss said. However, a traditional IRA can help lower your parent’s tax burden in the year they contribute to it.
Health Savings Account (HSA)
While it’s not strictly a retirement account, an HSA (available for people with high-deductible health plans) can help lower your parents’ taxes today, and can be used tax-free to cover qualified health-care-related expenses in retirement.
Maximize Income and Reduce Expenses
According to research from the Federal Reserve, most retirees rely on multiple income sources, including:
Social Security paymentsPension incomeInterest and dividendsRental incomeWages from employment or self-employment
If it seems like your parents’ retirement income and savings may not cover all budgeted expenses, ask them to consider the following strategies to boost their income and lower their costs.
Wait To Retire
Collecting retirement at age 62 will leave you with substantially less in your Social Security check versus waiting until age 70, Simasko said. “If you wait to collect [Social] Security, you’ll earn more money in retirement. You may have to wait a few years longer, but it’s easier to work at age 62 than go back to work at 82 to pay credit cards or buy medicine,” he said.
Downsize
Huddleston encourages potential retirees to consider downsizing. “You can live in a smaller house or apartment with less maintenance and possibly save a ton, not just on the mortgage and utility bills, but also yard work and tools,” she said. “You can take the money you were putting toward your mortgage and put more money toward your retirement accounts.” This strategy is also effective if your parents rent their home. Spending less on rent each month would free up money for savings and other costs.
Relocate to a Retirement-Friendly State
“Moving from a high-tax state to a more tax-friendly state can save some big bucks,” Weiss said. “States like Florida, Texas, Tennessee, and others don’t tax income and Social Security, which can put a few hundred dollars per month back in their pocket.” You can also seek out states with lower costs of living, where retirement dollars can stretch a little further every month.
Find a Side Hustle
Food delivery, grocery shopping, cat-sitting, and dog walking can offer extra income to help pay down debt, save for retirement, or cover costs. “Maybe your parents won’t be so keen on driving for Uber or Lyft, but there are many side hustles that will keep them active and engaged and provide some supplemental income,” Weiss said.
Take Advantage of Government Resources
Government resources may be able to help soon-to-be retirees who didn’t save enough—up to a point. With your parents, evaluate the potential resources available to them.
Social Security
Social Security was designed to provide financial safety nets for millions of retired Americans, Weiss said. The income may help provide a lifeline for retirees who haven’t saved anything. However, the average monthly Social Security benefits payment for retired workers was $1,669.44 as of June 2022 (the most recent data available), which may not be enough to cover your parents’ costs. Your parents may be able to increase their Social Security benefits by delaying retirement, coordinating benefits with a spouse, and limiting taxes.
Medicare and Medicaid
Medicare, a government health insurance program, can help cover health care, hospital stays, and medication costs. Medicaid is a state-federal program for lower-income older adults that can help cover additional costs, including long-term care. However, coverage varies by state. Find out what’s available in your state to help reduce your parents’ out-of-pocket medical expenses.
Government and Other Retirement Assistance Programs
State and local governments often administer federally sponsored programs, and other programs are community based or for veterans only. Many programs require financial qualification, Weiss said, which usually means showing income and assets below a specific limit. “Programs can vary widely from county to county and even state to state, so where your parents retire can greatly affect what resources are available to them,” Weiss said. Look up your parents’ zip code through the National Council on Aging to find out what’s available to help pay for:
Groceries Health care, counseling, and prescription drugs Property taxes Phone service Heating and cooling costs Weather protection Legal help
Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! The average annual spending for those ages 65 or older is $47,579 per year, according to the most recent Bureau of Labor Statistics data from 2020. Inflation has likely significantly increased that number and eaten away at retirement savings.
