How to help your parents and still save for retirement
The financial impact of COVID may have cut into your parents’ retirement savings, or perhaps they just simply didn’t save enough to last the distance.
Whatever the reason, if you’ve now found yourself with parents you need to help, you may be wondering how this will affect your own retirement plans.
So, here’s a few things you can do to help both you and your parents improve your chances of retiring comfortably.
Analyse your parents’ assets and savings
It can be tough to start a conversation about money with your parents, but it’s one of the most important conversations you can have to understand their retirement savings.
Having access to their financial information will give you a better understanding about their situation. More importantly, you’ll know if you’re going to be required to help them financially.
Ideally you want a clear picture about their current assets, savings and debt status plus an understanding of their income and expenses. There are budget planners and phone apps you can use to help get control and visibility around spending habits. You may also want to use a retirement calculator to give an idea of how long their money will could last.
If you find they don’t have enough income to support their retirement, there may be things they can implement to change it. This could include cutting down expenses, moving to a more affordable home or renegotiating their debt. It’s very important to make sure they are maximising any social security entitlements they may have too.
Review their health insurance
Healthcare costs are becoming increasingly onerous so it may be advisable to review your parents’ health insurance. It’s important they have enough cover for medical expenses, long-term care and other retirement costs.
Seek professional help
Enlisting the help of an expert, such as a financial adviser, may alleviate some of your pressure.
Better yet, financial advisers can assist in developing appropriate strategies to ensure you’re meeting your own retirement goals as well as your parents. They can also investigate what tax concessions, or other government benefits, your parents may be entitled to.
Perhaps most importantly, a financial adviser can help you take a holistic view. They can look at your parents’ situation and your own and work out strategies that optimise both outcomes over the long-term.
For example, you may need to reduce your current spending to help your parents retire more comfortably. That’s a short-term cost to you – but if it means your parents can keep important assets like the family home, you may benefit from that in the long-term. A financial planner –trained, impartial and able to see the big picture – can be a big help.
Set clear boundaries
It’s an admirable thing to help your parents but be clear about what that help consists of – for example it’s one thing to help out with their bills occasionally, but it’s another to have your name placed on loan documents!
If that isn’t the type of help you had in mind, it’s important to communicate that – and stick to it.
Invest in your own retirement
There are retirement calculators you can use to see if you’ll have enough saved to maintain the standard of living you’d like in retirement.
If you find you need to make financial adjustments to increase your retirement savings, one option could be to contribute more to your super on a regular basis using your before-tax or after-tax income. There are tax benefits that come with this too.
For example, if you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you’ll reduce your taxable income for the financial year and potentially pay less tax, while adding to your super balance. It’s a win-win.
These types of contributions are capped at $25,000 per financial year however. If you choose to contribute over this amount, you may be required to pay more tax.
Bottom line: We all want to help our parents if they’re struggling financially, but it’s important to think of your own situation too. And don’t forget, money isn’t everything—one of the best things you can do for your parents is to spend quality time with them while you’ve got it! Call us on Phone (07) 3343 9228 to find out more.
Source: MLC Insights March 2021
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