How to Help Your Parents Afford Retirement Without Going Broke Yourself

Planning for retirement can be an intimidating topic, and for good reason: More than a quarter of non-retired people have absolutely no savings for retirement, and even many people who have some retirement savings have almost none . For some people, this means tightening their belts and figuring out how to survive on Social Security . But for many aging parents, not saving for retirement means they rely on their adult children for a retirement plan.

About a third of middle-aged adults already support their parents financially , and most expect this to continue indefinitely. While most people love their parents and probably don’t want to see them slide into poverty and sadness, there is one obvious problem with your parents’ retirement plan: you could go broke doing it. If you know that your parents will turn to you for support when they can no longer work, you can take steps to protect yourself.

Start with numbers

First, you need to know what you’re dealing with, and that means learning about your parents’ financial situation and overall health . Consider all of these possible sources of income and potential financial needs.

• Conduct a Social Security audit. If your parents worked, they are likely eligible for Social Security benefits. If they haven’t already done so, ask them to set up Social Security accounts and check their benefit situation. Keep in mind that the longer they can wait to receive Social Security benefits, the larger the payments will be . Social Security won’t be a huge amount of money, but depending on your parents’ work history, it could be a significant amount that will definitely help cover the cost of supporting them.

• Track their retirement savings. Even if your parents have long assumed that you will be their retirement plan, they may have automatically accumulated some retirement savings through their work. They may even have forgotten about the small 401(k) plans they left behind at their old job. Do a deep dive into every retirement account they have or once had , and make sure you know how to access them and what their balances are.

• Plan what to do with your property. If your parents have a home, find out what things are like there. Do they still owe on their mortgage? Are there open lines of credit or home equity loans? What is the cost of the house? Selling can free up a lot of money that could be used to support your parents (while eliminating the associated costs of owning a home), while a reverse mortgage can be a way to allow your parents to age in place with increased income.

• Make a budget. Once you know how much money your parents actually have, you can create a budget for them that will make the most of that money. Teaching them to live on a budget now will pay dividends later if you have to take a more active role in the day-to-day management of their lives. It’s important that this budgeting process includes how much you can reasonably contribute without damaging your own finances or your future retirement. Knowing your “number” in the context of your parents’ support will be important in every decision you make, so you’ll also have to plan your own budget with your parents in mind.

Consolidate your resources

Now that you have an idea of ​​how much your parents (and you) will be able to contribute to their care in retirement, you can start thinking about ways to reduce those expenses. A few scenarios to consider:

• Bring them to your place. If selling their home is part of funding their retirement or they don’t own property, one of the easiest ways to reduce their retirement costs is to have their parents live with you. Obviously there are a lot of emotional and psychological factors involved, but from a financial perspective it makes a lot of sense. Instead of trying to pay for their living expenses on top of your own, many of these expenses will be shared and you will be able to control these expenses as well.

  This may especially make sense if you have space in your own home and your parents do not need the support of a nursing facility or other resources (such as a nurse). But it’s important to formalize how they will contribute to the family budget, whether it’s paying rent or covering specific bills.

• Give them tax-deductible “gifts.” You can give a certain amount of money to your parents every year without any tax issues. The current limit is $18,000 , so you can transfer this amount to your parents to help support them without having to file any tax documents. This can help cover their bills without any additional penalties on your income or assets.

• Create a money pool with your siblings. If you have siblings, each of you may have different abilities to help. Instead of richer siblings paying for everything and lower-income siblings paying nothing, create a “pool” of money that everyone pays into according to their situation, and pays our parents’ bills from it. It’s important to consider not only the siblings’ income, but also their direct costs – for example, if your parents live with you, you may be paying more to cover higher utility bills and other expenses, and thus you may be able to contribute less contribution to the pool to reflect this.

Find support

One of the most important things you can do to protect your retirement once it becomes clear that your parents will need your help is to identify government programs that your parents can use to supplement their pension. There is often a stigma attached to using these types of government and community programs, but that’s why they exist – so take advantage.

There are obvious programs like Medicaid and Medicare, or food assistance through SNAP , but there are more options than you think, so do your research. A good place to start is this site maintained by the National Council on Aging , which allows you to search your area for specific support programs, including health care, transportation needs or simple senior discounts that may be available. There are often many valuable benefits that can save your parents, and therefore you, a lot of money.

There are several federal government programs outside of your region that may also help:

• US Department of Housing and Urban Development (HUD). If you can’t afford to move your parents in and they can’t afford where they currently live, HUD offers programs to help seniors find affordable housing.

• Community assistance. Heating and cooling can be expensive, and trying to reduce costs by not heating or cooling your home can be dangerous. Many local utility companies have low-cost programs for seniors in need, so it’s worth calling and asking about them. There is also the Low Income Home Energy Assistance Program (LIHEAP) that can provide assistance.

• Tax benefits. If your parents have a very low income (currently between $12,500 and $25,000, depending on their filing status), they may be eligible for a federal tax credit , which can be up to $7,500.

• Supplemental Security Income (SSI). If your parents are 65 or older and earn less than $1,971 a month, they may be eligible to receive SSI . This won’t be a huge amount of money (it depends on your actual income and other factors, but it maxes out at about $914 a month for individuals and $1,371 for couples), but it can help cover expenses.

Additionally, many areas offer free transportation for seniors (sometimes specifically to and from the doctor, but some municipalities also offer free buses around town), which may allow you to cut car costs from your parent’s budget.

Being your parents’ retirement plan comes with a lot of responsibility and a lot of stress. But if you plan ahead and explore all available resources, you can at least avoid going bankrupt in the process.

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