My parents are in their 50s and they’ve done nothing to save for retirement — are they destined to struggle in their golden years? 5 simple steps to help them catch up
As children, we tend to get used to our parents being the ones in charge — even once we get older and have families of our own. But what if you find yourself in a situation where you have to take control of your parents’ finances?
The average baby boomer has $120,300 in retirement savings, according to Northwestern Mutual. And Gen X has just $108,600 socked away. Both those figures are well below the $1.46 million Americans across all generations think is required for a comfortable retirement.
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If your boomer parents don’t have much in the way of long-term savings, and they also haven’t done any financial planning, they’re not alone. But if they need your support to get things sorted, here’s how to take charge of this tough but all-too-common situation.
Help them figure out their retirement income needs
Americans 65 and older spend an average of $57,818 per year, says the Bureau of Labor Statistics. This doesn’t mean that your parents will need to spend that much. But it’ll help to run some numbers and see what their annual expenses might amount to.
And it’ll also help to give those expenses a reality check.
Your parents may realize that if they want to stay in their home, drive two cars instead of sharing one, and have the ability to go out on occasion, it’s going to take $50,000 a year. And if they have virtually no savings, that $50,000 annual budget may not be feasible unless they start making changes immediately.
Get an estimate of their Social Security benefits
The average Social Security recipient today collects about $1,918 a month, or roughly $23,000 per year. But the amount of Social Security your parents are entitled to may be very different.
You can sit down with your parents and use Social Security’s Quick Calculator to get an estimate of their monthly checks. Keep in mind that if one of your parents never worked, they should still be entitled to a spousal benefit from Social Security that’s worth up to 50% of what your working parent is eligible for.
Knowing how much Social Security to expect is helpful, because from there, you can establish a savings goal for the remainder of your parents’ working years. You can also remind your parents that if they work longer, they may be able to delay their Social Security claims until age 70 for a boosted benefit (though spousal benefits aren’t eligible for this incentive).
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Set your parents up with automatic contributions
Whether your parents have a small nest egg at this stage or none at all, it’s important to get them closer to their savings goal. If you have a parent who’s already signed up for their company’s 401(k), make sure they’re contributing enough to claim their employer match in full. Among Vanguard 401(k)s, the average match in 2023 was 4.6% of pay. Anyone who’s behind on savings shouldn’t give up so much as $1 in employer retirement plan contributions.
If neither of your parents has access to a 401(k), set them up with an IRA that takes automatic contributions. These can be arranged so that money lands in their savings once their monthly paychecks hit.
Invest their savings appropriately
Your parents’ savings may need a serious boost if they’re nearing retirement without much money socked away. But don’t get overly aggressive with their investments.
If they’re about five years away from retirement, that’s not a lot of time to ride out a prolonged stock market downturn. If they’re more like 10 years from retirement, you may be safer to go heavier on stocks with the understanding that you’ll probably need to do some portfolio shuffling as that milestone nears.
If your parents have a 401(k), you may want to put their money into a target date fund, which will allocate their assets appropriately based on their expected retirement date. This might help ease some of your investment risk.
That said, do know that target date funds tend to charge relatively high fees, known as expense ratios. You’ll need to weigh the pros of a simplified approach to last-minute retirement investing against the cost.
Find them a great financial adviser
It can be difficult for parents to take advice from their grown children — financial or otherwise. Do the legwork to find your parents a financial adviser who can review their savings and income picture and help get them on solid footing.
This doesn’t mean that you need to step away completely. But if, for example, you’re not comfortable choosing investments for your parents because their strategy needs to be very different from yours, that’s where an adviser can help. An adviser might also be able to offer up suggestions that allow your parents to both catch up on savings and make the most of the nest eggs they end up with.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
