Talking to your parents about their retirement doesn’t necessarily mean going over their financial statements. Here are a few general topics to help them understand what they should be thinking about:
- Are they still contributing to their retirement savings?
They may have a sizable balance built up in their 401(k) or IRA. It’s easy to overestimate how long that will last in retirement, or to underestimate how much more they can build up their balance over their remaining working years.
- How are they invested?
Retirement can last decades. A portfolio has to have an appropriate amount of risk, typically equities, to grow the balance. At the same time, excessive risk or concentrated positions can be dangerous to their retirement health.
- Have they considered an encore?
Your parents may think of retirement as sitting around and doing nothing and hate the idea. Maybe they still want to work because they like to be productive or enjoy being socially connected. Millions of people around traditional retirement age have shifted into part time work, started new businesses, or shifted into a new Encore career based on a long-held passion, such as teaching. Help them understand that they can work in a new way that has both practical and emotional benefits.
- Do they have “a guy”?
An advisor can look at their overall financial picture and help them shift from “I would like to retire someday” to “I can retire in three years.”
- Have they planned for retirement income?
It’s not about the retirement nest egg; it’s about how you crack it open. Online tools can help you translate your retirement savings into a monthly income number that will be more meaningful as you plan your spending in the years ahead. There are also numerous strategies for drawing down savings or annuitizing. The sooner they explore their options, the more time they have to make adjustments.
The Most Important Question of All
Save the most important question until the end: “Mom, dad, what can I do to help?” Regardless of how they answer, there is much you can do. On the practical side, did they take on financial burdens to support you? Are they still paying off your college loans? Are you in a position to take over the payments so they can put more into their retirement savings?
The emotional support may be more important: tell them you want them to put themselves first. They have made a lifelong habit of looking after you. Putting their own financial wellbeing first may not be easy for them. Let them know that their security is what you want the most.
Chip Castille, Managing Director, is head of the BlackRock US Retirement Group. You can find more of his posts here.