Experts: How To Save for Retirement While Financially Supporting Older Family Members

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The World Economic Forum published a finding in the summer of 2023 stating, “Life expectancy increased from an average of 48 to 73 years between 1950 and 2019 and the United Nations forecasts further increases, estimating that global average life expectancy will reach about 81 years by 2100. Longer lifespans are causing individuals, governments and business leaders to rethink their approach to work and retirement.”

The report ultimately concludes that because lifespans are increasing, global governments and employers have to re-think, re-tool, and re-design how they view retirement in order to ensure that aging populations “can live fulfilling, healthy lives.”

One demographic that is seeing the pressures and changes of a longer living population are the younger people of today, many of whom are having to financially support older family members while trying to save and plan for retirement themselves. How is it possible to continue saving for retirement and building your own wealth?

“The recent World Economic Forum report underscores the need for young people to start planning for retirement yesterday!” exclaimed Patrick Kilbane, wealth advisor at Ullmann Wealth Partners. “Whether the goal is to financially support aging relatives and/or helping your children with their higher education expenses, it is imperative to know whether you are on track to meet your own retirement goals first. How do you know if you’re on track to meet your retirement goals?”

Luckily, Kilbane and a few other wealth and retirement planning experts have some advice on how to save for retirement when you are financially supporting older family members.

Prioritize Financial Education

In order to get your money in order, you might have to get educated on how to track and understand your personal finances. Little adjustments, such as knowing how to invest and diversify might not pay off in the short term, but can yield bigger returns over the course of time.

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“Children supporting aging parents must first get themselves on solid financial footing,” said Michael Horne, CFP, managing director and senior wealth advisor at Mariner Wealth Advisors. “Understanding your current financial plan, savings rate, expenses and financial goals must happen before you can assist family members.”

Add Compassion to Your Budget

It’s all about striking a balance. When you are saving and budgeting, it’s important that you not only set aside a fixed percentage for any senior members of your family, but don’t put your financial goals in peril at the same time.

“Just as flight attendants on commercial flights instruct parents traveling with children to place their mask on first before helping the children, I tell my clients they need to make sure they are on track to meet their retirement objectives before helping others,” said Kilbane.

What if that option isn’t available to you, with either your elderly family members or your own immediate family needing a larger portion of the pie?

“If you want to do both, then you should consider working longer, saving more now, changing your asset allocation and/or cutting back on some of your current expenses or aspirational expenses,” Kilbane advised.

Take Advantage of Tax Benefits

Do some research when it comes to your taxes, as well as your family members. Depending on where you live, tax deductions for dependents are offered in several jurisdictions and you might not be aware of it. Use these tax benefits to your advantage to optimize your income and savings.

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Consider a Semi-Retirement Plan

The World Economic Forum report shows 45% of those under 40 expect they will need to provide financial support to elderly relatives, compared with 32% of those over 40. Therefore, you might want to rethink your retirement age as set in stone and even consider a semi-retirement plan instead.

“We give our clients a target for the value of their liquid net worth at the end of each calendar year,” said Kilbane. “If their liquid net worth is greater than the target, they can use the surplus to help aging parents and/or pay for higher education expenses if those items are not included in the plan.”

Try to reduce your work hours over time, perhaps even move into a role, such as a consultant, where you are still generating income into your later years but not working full time.

Open Dialogue

The most important thing to keep in mind is to be open, honest and consistent with your communication to your senior family members. Let them know what you can reasonably do, what might have to wait, and what is financially not possible — either now or in the future.

“A family conversation should occur between all family members involved,” Horne recommended. “Effective communication is paramount as these conversations can become contentious. A third party, such as a wealth advisor, may be able to keep emotions in check while navigating the situation. High emotions usually don’t lead to quality decision-making.”

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