Being your parent’s retirement plan - Expert Edition Episode 23 (Classic Episode)
According to recent studies, more than 50% of millennials are financially supporting their parents. The statistics get even more interesting. Did you know that almost 75% of these millennials are women.
I also share my concerns about how caring for my parents will affect my finances in these episodes with Dr. Jay:
Also, according to a 2015 TD Ameritrade study, one in five millennials support their parents by spending an average of $18,250 per year. We discuss:
How to budget taking care of parents.
How to avoid depending on your children by adequately funding your retirement.
The role of high divorce rates amongst baby boomers plays.
Subsidizing retirement with a rental property.
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TRANSCRIPT:
[00:00:00] Naseema: All right, nurses on fire. So we are back with our certified financial planner, Lisa Peterson, and today we're going to talk about kids being their parents' financial plan. And so I found a study by TD Ameritrade in that they put out in 2015, which says that one in five millennials support their parents by spending an average of $18,250 per.
Year. So that study is a little bit older, but I think it highlights an important point that we, this generation of people have a huge financial responsibility that's not a small sum to think about spending on extended family. And so I wanted to talk about that and wanted to talk. About what does that mean for millennials and what they should be preparing for what just what does it mean in general?
[00:00:56] Leisa: Yeah. So it's pretty serious when Yeah. You've got, depending on how much these folks are making, could be as much as 20% or 25%, maybe even more of their income that's going towards taking care of their parents. That would basically be the amount of money that somebody's probably taking from retirement and putting into, their parents' living expenses.
I think that this is one of those things that, we're talking about it here because I think we wanna bring awareness to the problem. We also wanna. Talk about how do we avoid being that person someday where we need to rely on our kids to take care of us. Yeah. We don't know what the future will look like.
Part of, I think the challenge is that even though inflation has not been, Like crazy high, it adds up. And in fact, there's a lot of emphasis right now to try and get inflation up to 3%. And we haven't even seen that kind of level. But in order for interest rates to rise, inflation needs to rise.
And so we are potentially going to find ourselves in situations where the cost of living later in life is a lot more expensive than we planned for. And my guess is that has something to do with why these. Boomers are needing to be supported by their millennial children.
[00:02:24] Naseema: Yeah, it's it's scary to me because I'm thinking like that is a huge chunk of change.
And I, I. When you look at millennials annual salaries, the average is not six figures. So to even be 2015 to 20%, you would have to be making well into six figures to be able to support your families at this level. And my guess it's closer to half of that. And so this is like half of people's take home pay in order to help family.
And so it's pretty scary. And Like you said, on one hand we need to look at if this is our reality, how do we plan for this? And then on the other hand, how do we stop perpetuating this cycle so we don't have to do this as well to our, to the next generation. Oh,
[00:03:15] Leisa: Something just occurred to me that also might be caught up in that research, and that is we have in the United States, a very high divorce rate and boomers especially had a very high divorce rate.
And my guess is that in that population, there were a lot of folks who had a primary breadwinner and then someone who had maybe a part-time job or not a job that was like, Making a lot of money. So they get divorced and now you might have mom or dad not being able to financially support themselves like a divorce is tragic.
For from a financial perspective. Yes. You get someone who didn't expect to be supporting themselves on social security, and yet they are. And that's where the millennial comes in and has to help a parent. So that might also be part of what happens. Divorce is something that can have that kind of impact later in someone's life because you just didn't plan for it to work out this way, and the settlement just isn't enough money to cover you for all those years of living, in your eighties or nineties or beyond.
[00:04:25] Naseema: Yeah. Yeah, I was reading the comments cause I posted something about this. But yeah, I didn't even think about that. What I what comes to mind for me is a lot of people who maybe are first generation Americans or first generation two, Make it right the first generation of people who have actually had a wealth established career, but yet the expectation has always been to give back, to reach back, to serve your family.
And I didn't even think about the trauma that divorce has had, and I've seen it firsthand in my family too. How people have been the second, like not the primary breadwinner, but then have had to turn on lean on their kids for financial support later on in life because they don't have the adequate savings those retirement funds and things set up because that settlement that alimony all that stuff is done.
What do we do?
[00:05:23] Leisa: I think that there are a lot of different things. One that comes to mind is just an example of a friend of mine. Her parents got divorced when I think we were in college, and I. I think she and her husband ended up helping her mom for a period of time, and she ended up getting a job that actually did have some kind of pension associated with it.
So she did that job for another 15, 20 years so that she could retire from that job. Had she not done that, then I think my friends would be totally supporting her, the, her mom's retirement. So I think that, What's really important too is that sometimes in life when those upsets happen, so divorce or something happens and let's say it's your mom or your dad, and you're worried about them not being able to take care of themselves.
Like what is it they can do? Because work is something that's precious and I think that. It might be one of those situations where you've gotta learn new skills, you've gotta go back to school, you've gotta get trained in something else and realize that's super important because you might be talking about 30 or 40 years of living in a situation, and if you could find a job that you could do for, even part-time, it's going to alleviate situations.
And I, I just always see people. Thinking, oh, I'm gonna be fine. We won't need that. But I'm just mentioning it here that most of the time if you are not financially set and you're not sure how you're gonna take care of your retirement, for example, going out and getting training earlier rather than later wouldn't be a bad idea.
Even like for us, one of the jobs that many of us digital, folks that run these digital businesses is like virtual assistance. And it's a great job for someone who is looking to take over and take care of the details. And you can do it from home. And huge flexibility. You could do it at night, you could do it early in the morning like.
Those are great jobs where you could make really good money with a lot of flexibility, but you're gonna need to dig in and learn a whole bunch of new skills in order to do that job.
[00:07:41] Naseema: Yeah, that's true. Me selfishly, I'm just in the back of my mind thinking if I'm supporting my parents and then, and they can come live with me, then maybe I don't have to pay for childcare.
Yeah, that's it. Save me. Which one did save me a couple thousand dollars a month, which did, it's just a wash. I could just pay them instead of just paying all this money for childcare. Touche. We
[00:08:09] Leisa: totally did that when my kids were young. My mom, we like worked out a deal and she cut hair, but she had a lot of flexibility to work.
Kind of long days cutting hair and then she was available for daycare, which really helped us.
[00:08:26] Naseema: It's nice to have that. It's nice to have that. I think what's important is that because the statistic is there. What are we going to do? How are we preparing ourselves so that we don't become this for our children?
And I think one of the mo most important things is understanding the importance of having long-term savings through retirement accounts or whatever, and making sure that you don't put that off, thinking that there's always gonna be time because there's no time, like the present and
compound interest is a miraculous thing, and even if you're able to just contribute a little bit it goes a long way if you start sooner than later. And so making sure that we don't perpetuate that cycle, maybe because we have this financial burden to just make sure that we're making sure that we take care of ourselves and saving for.
Later and the next generation so that it doesn't perpetuate the cycle. And I think that's what it is. It's this cycle that keeps on perpetuating themselves itself. Even though we might have elevated maybe to a different level, we have higher social status, our financial status than our parents.
But because we do have these obligations, we're not able to build wealth in the way that other people can.
[00:09:49] Leisa: Most definitely. You mentioned earlier about having a rental property into your retirement is a great way. Yeah. This is one of the ways we plan to subsidize our retirement, and I would also say that, Even if everything is good, but you feel like you would like to be saving more money.
Like what could you do to maybe invest in yourself to get a more high paying job or to do a side hustle? Like I think that we never look back in the past and think, I wish I had, Not invested in myself, like we just never we always look at those sorts of things, and especially in this new economy and the changes that are happening in the world so quickly, I think there's a lot of merit to just thinking what could I learn?
How could I improve my myself? Skills and always be growing and always be expanding in one capacity or another. It's really paid off for myself. And it's interesting cuz my husband hasn't taken that approach and now he's like learning my business and it's really tough because he hadn't focused on this stuff and it takes a lot longer the older you get to learn this.
Stuff. So start young in realizing that you should be always learning something new, another language, another software, another tool. It's amazing that how much you can help yourself and your family.
[00:11:17] Naseema: Yeah, I think that's the key takeaway is it's never a bad idea to. Earn more money. The key is always to increase that gap between your income and your spending.
And bottom line is that if we know that this is something inevitable, that we have a plan around it, but we also have a plan to protect our future generation so that this stops happening. And it's just a wake up call, like another wake up call. Like anything else that This is real. This is real finance.
This is real personal finance, and these are the things that people are faced with and something that we need to just have a plan around. Have a plan around it. Stick to your plan. See how you can increase your income. Maybe see how your parents can increase their incomes. But just know that this is on the horizon and not something that we can push off into the back of our minds, because again, we will continue to perpetuate this cycle.
Yeah, this has been a good conversation, Lisa, and it was really eye-opening for me because I've been in that mindset like, I'll probably have to help my dad or my parents, some. Time now or in the future. And I hadn't really been doing any active planning around it, but I'm starting to create a sinking fund now, at least a couple hundred dollars a month that I'll just put away for if my parents need it.
And so this is Yeah. On time. Awesome. All right. Thank you as always, Lisa. This has been a great conversation. Thank you.
Hey there I’m Naseema
My dream is for everyone to know that financial independence is attainable with a little intentionality. Learn how I can help you finally break the cycle of living paycheck to paycheck.
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