It never seems like the right time to ask a potentially embarrassing question. Your parents may be watching television, eating dinner, quietly reading. But you need to know – you can’t rely on rumor, guesswork and stuff you’ve seen on the internet. So you pause at the door, nervously clear your throat and ask:
“Mom, dad…are you really ready to retire?”
Embarrassing, Awkward and Necessary
There are a number of ways the conversation may go. Your parents may smile and nod, and tell you that everything is fine. (That may even be the case.) Or you might get a red-faced denial that it is any of your business. But it is your business, if not in the specifics, at least in general.
If you are a Millennial, you’re probably in the midst of some major life changes. You may be getting married, having children or buying a home. Your career may be advancing rapidly and your earning power growing. If your parents are not prepared for retirement, you may find yourself facing the financial burden of helping them.
The reason to have the conversation is not simple self-interest, however. You’ve probably gotten a lot of advice from your parents, but there have always been areas where it has been you giving the guidance. (For example, helping them figure out their smart phone.) When it comes to today’s 401(k)-driven retirement, you may be more comfortable with it for the simple reason that it is all you’ve ever known.
5 Questions to Guide “The Talk”
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.