Lingering financial uncertainty is likely to persist for some time yet and, for many, this will impact retirement plans that were already in place. Further to this, what will happen if your parents’ savings aren’t sufficient in supporting their retirement, too?
Many adult children could soon be faced with putting their own retirement plans on hold while focusing on their parents’ financial wellbeing instead. Sacrificing one’s own retirement savings to assist elderly parents has the potential to develop into a cycle where the retirement plans of the children are also threatened.
In these circumstances, consideration should be given to the following:
- For the parents, you’ll require hard numbers in order to assess the situation properly. Developing a budget spreadsheet of your parents’ expenses and income will enable you to see exactly where they stand financially, and how long their money is likely to last. It’s important to include the financial consequences of COVID-19 and how this has impacted superannuation balances and investments. If there is a deficiency in their income, you might want to consider professional financial advice. This may include setting up an emergency fund to cover medical expenses, and they could consider downsizing from the family home
- For the children, identify how much you’ll need in retirement and whether you’re on track to meet it by using a retirement calculator. If financially impacted by COVID-19, you are likely to have a number of years to recover from any current financial effects or losses. If you find that you’re going to fall short, you may want to consider investing more into your retirement savings than just the compulsory 9.5 per cent employer contribution.
Additionally, one of the most important things you can do – as children – is to ensure that your parents have appropriate insurance. If you don’t invest in financially protecting your parents now, you may end up having to cover basic retirement expenses later on. Healthcare costs in particular, are becoming increasingly expensive, so it may be in your best interest as well as theirs.
While your parents may want to retain their independence in retirement, at some point, assisted care may become necessary.
Retirement homes and assisted living facilities can be expensive, so if this isn’t going to fit within your budget, you may need to consider other options. One option could be that they move in with you or a sibling for instance. You may also want to investigate whether they meet the requirements for government funded housing support.
Understandably, managing these pressures amid a time of great uncertainty can be difficult, so independent advice from a third party, such as a financial adviser, can be useful. They can assist in developing appropriate strategies to ensure you’re meeting your own retirement objectives as well as those of your parents.
This article was published in the 2020 Winter edition of Financial Times.