Retiring With a Full House
It's one thing when the kids return home after college. It's another when you're about to retire and suddenly you've got a full house again. The latest wild card in retirement is not social security or life expectancy. It's the number of dependents retirees may have. According to a new survey by SunTrust, more retirees are suddenly taking into account having to support aging relatives, adult children, grandchildren and siblings. Half of respondents in the survey said they expect to provide this support – much of it going to adult children due to a foreclosure, job loss or other financial troubles.
Some advice if you suspect this will be you:
1. Be a Resource, Not an Enabler.
There's a fine line between offering help and being an enabler.
You don't want to immediately write blank checks to your children. You may look at this as your obligation to help your children, but that doesn't mean you need to become their personal ATM. Understand what it is that they need first – whether it's money to help pay the mortgage or a credit card balance – and become a source of ADVICE FIRST, MONEY SECOND. The first thing you should do together is to try to brainstorm other potential solutions and resources – for example, calling lenders and asking for loan modifications or discussing alternative college options with your grandchildren such as going to community college for the first year or two, if paying tuition is going to prove difficult.
2. Avoid Tapping Your 401(k)
If you've yet to retire and suddenly need to help your adult children with their finances, avoid making advance 401(k) withdrawals. You'll have to pay income tax on the money, as well as a 10% penalty, meaning you could easily wipe out half of that money you've worked so hard to save. Pretend that money just doesn't exist and don't consider it an option for now. Once you retire and you're able to withdraw that money penalty-free, you may decide to allocate some of that towards helping your family.
3. Discuss Retirement Plans With Your Adult Children
You may think that just because you are in your early 50's or 60's that there's no need to have a serious talk about your finances and retirement plans with your children yet. But the sooner you start, the better especially if one parent has an illness or is disabled. Let them know how you've been saving all these years, what your hopes are in retirement, as well as a list of all your doctors, lawyers, accountants, etc. By having your children witness all the careful planning you've done, they may develop a newfound appreciation for the help that you're providing them – and will hopefully be inspired to take more control of their lives independently.
4. Develop a System of Bartering
If your adult children suddenly move in – and they're not able to help contribute to the monthly housing costs, gas or groceries – you should be getting something in return – maybe not money, but definitely some help around the house. After all, you've reopened your home – not a hotel. Have a conversation before family moves in about expectations and what everyone can do to help. Take turns preparing meals, doing the laundry and babysitting. Grandma should not have to stay home every Friday night watching her grandkids. You need give and take when living with family.
5. Invest in Long Term Care Insurance
Only 10-12% of those aged 65 and up have long term care insurance. That's dangerous. Paying for long-term care on your own can be financially ruinous. Assisted living facilities cost an average $40,000 a year and nursing homes can cost more than double that per year – and many of these costs are not covered by Medicare. With long-term care insurance you ensure that your children – who are perhaps not in the best financial state — won't have to pay out of pocket if you choose to get assisted living or live in a nursing home one day.
6. Plan for Increased Future Costs
For retirees who are suddenly facing the possibility of taking care of their kids and their grandkids, the concern is not just paying for more groceries, but perhaps also college costs for your grandkids. Know that you can open a 529 plan or contribute to an existing plan. You may also want to revisit your life insurance policy and make sure there's enough there to cover those that are suddenly re-dependent on you. Your policy may have only addressed your expenses as husband and wife. Now it may need to address your dependent adult kids and possibly grandkids.
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