Your Kids Don’t Want To Support You — 9 Tips To Avoid Being Broke in Retirement
Written by
Jordan Rosenfeld
Edited by
Rebekah Evans
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A recent trend revealed that boomers in dire financial straits are moving back in with their millennial children, much to those children’s chagrin. While it’s nice to be able to support your family briefly when in need, in an ideal situation, most people don’t want to have to rely upon children in retirement.
GOBankingRates reached out to the experts to find out the best ways to avoid being financially strapped in retirement.
Don’t Overpay for Kids’ College
A big and common “mistake” that people make near or in retirement, is spending too much money on their kids,” said Derek Mazzarella, a certified financial planner (CFP) with Gateway Financial Partners and author of the book, “Just Retire Already.”
“They overplan or overpay for college to their own detriment,” Mazzarella continued, “So, I think the first thing that especially parents need to really understand is ‘Can I take care of myself first?’ Because as we’ve seen, if you don’t take care of yourself first, your kids end up taking care of you eventually.”
Retire With a Plan
Another mistake Mazzarella sees people make is to retire without a plan.
“They just kind of stop working and then they try and figure it out on the backend. And that can hurt. The way I would phrase it is — think of a ship with a hole in it. It’s going to leak some water, but if you don’t plug these holes, they’ll leak more water and you’ll have a less efficient retirement,” he said.
According to Christopher Stroup, a CFP with Abacus Wealth Partners, “It really comes down to what lifestyle you want to have in retirement. What do you want your day-to-day to look like, your month-to-month, your annual?”
Asking these questions in advance can save you money trouble later.
Pay Attention to Taxes
Just because you stop working doesn’t mean you no longer pay taxes, Mazzarella said, which people forget often in retirement.
“Most people will just save in a pre-tax IRA or 401(k), and then they have a higher tax bill than they thought in retirement,” said Mazzarella. “So, making sure you have different buckets can be helpful, such as a Roth bucket, an after-tax bucket you can be a little more nimble with. That’s a way to basically get more income out of your retirement savings.”
Get Maximum Social Security Benefits
One of the biggest and most difficult choices people typically have to make in retirement is when to take Social Security. An overwhelming number of people take it before age 65, Mazzarella said. This can make a huge difference in how much money you receive.
For example, he explained, if your benefit at full retirement age would be $24,000 a year, if you take the benefits at age 62 to 70, you’re getting 70% of the full retirement benefit, so around $16,800 a year.
Even just waiting to take the benefits from age 62 to age 65 would net you around $4,000 more per year.
Don’t Make Risky Investments
The five years before and after you enter retirement are known as the “retirement red zone,” Mazzarella said. It’s very important not to make risky investments in these years.
Stroup said that he’s seen people who want to invest in such things as cryptocurrency or other risky investments near retirement.
He continued, “I’m not here to say one way or the other if anyone should necessarily participate in cryptocurrency, but we know what crypto has done over the past couple of years and when you need to live off of those assets, do you want that volatility day to day?”
Risky investments are for the years when you have a greater risk tolerance.
Avoid Overspending
Another problem that can lead to running out of money is that retirement can feel like “every day is a Saturday,” Mazzarella warned, which can lead to a greater likelihood of spending.
You have to be careful of this. It also really comes down to properly forecasting your expenses.
“Just because you’re not planning for what could necessarily be the same amount of future unknowns that you are when you’re in your working years, it still comes down to needing to have a budget and a plan in place,” said Andrew Van Alstyne, a financial advisor with Fiduciary Financial Advisors.
“And not to use the beaten phrase, but when you fail to plan, you plan to fail.”
Be Realistic About Expenses
Anything that a retiree is going to spend their money on, to one degree or another, is already present in their working lives, Van Alstyne said.
While there are unexpected expenses, often related to healthcare and perhaps added travel or leisure expenses, he said, “A lot of it can be planned for if you don’t look through everything with rose-colored glasses. Sometimes you need to be a little bit more realistic in what’s going to happen in retirement.”
Overprepare for Medical Expenses
Medical expenses are among the most likely surprise expenses in retirement.
“People underestimate medical costs of retirement too,” Mazzarella said. “The average person thinks they’re going to spend about $2,000 a year in medical expenses, but they spend over $6,000.”
Consider having private health insurance in addition to Medicare, and long-term care insurance, as well.
Use an Online Calculator and Seek Help
Remember that there are online retirement calculators out there to help you understand what your future savings will be based on what you’re currently earning and saving, Stroup said.
However, trying to plan for retirement alone may just be too much for many people. Van Alystine said talk to a financial planner at any stage of the process before and during retirement.
“Situations constantly change, jobs change, health changes, family dynamics change. It’s something that constantly needs to be revisited,” Van Alstyne continued. “The more people that have eyes on the problem, the better the solution’s going to be.”
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