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What to do when your parents didn't save for retirement

Here's why you should have the retirement conversation now, plus some tips on what to say.

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As your parents get older, you might be holding off on having a tough conversation about how much they've saved for retirement or what they plan on doing once they begin collecting their Social Security benefits. It can be difficult to bring up the topic of retirement with your aging parents, but if they haven't stashed enough away in a 401(k) or an IRA, you or your siblings could end up being on their retirement plan. 

If you're waiting to have a conversation with your parents about what their retirement plan is, you shouldn't put it off any longer: A report by the Federal Reserve found that more than 25% of non-retired adults had no retirement savings at all. According to a 2020 AARP report, almost one-third of adults with at least one living parent are providing financial support to them and more than 40% expect to provide support in the future.

Whether your parents end up living in your home during retirement or you're just helping pay some of their bills, it's important that you understand how prepared they are for their non-working years and how they expect you to help. And, you can encourage them to start saving now before it's too late.

Select spoke to two personal finance experts about how to talk to your parents about retirement, how to help them make retirement arrangements and why you may need to set boundaries. 

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Having the retirement conversation 

First off, you should ask your parents what they envision for retirement, says Cindy Zuniga-Sanchez, founder of Zero-Based Budget. For example: Do your parents want to live in your house and help take care of your children or would they prefer to live alone? 

It's important to have clear and honest communication with your parents or siblings, says Zuniga-Sanchez. Parents may be reluctant to talk about money due to pride. According to Stefanie O'Connell Rodriguez, host of the Real Simple Money Confidential Podcast, children can come off as condescending when bringing up retirement with their parents because it's a role reversal of the traditional dynamic between parents and children. For parents, it may feel like their children are now lecturing them about their finances. 

O'Connell Rodriguez recommends that people start the conversation by depersonalizing it. You might want to mention a news story you heard about a parent who forgot to create a will or a statistic you read about how a significant number of people are under-saving for retirement before segueing into a conversation about your parent's personal finances. 

You'll also need to communicate with your siblings and other family members about how they're willing to help out. Some might be able to contribute more financially while others can devote more time to physically taking care of their parents.

Getting a clear picture of your parent's finances

In order to understand how much you may need to help, you'll need to have an idea of how much your parents have in their savings, their current income and their debt, says Zuniga-Sanchez. This means you'll need to know what types of retirement accounts they have such as a 401(k), a traditional IRA, a Roth IRA or a Health Savings Account (HSA). Furthermore, you want to understand what other assets they have, such as investments in a brokerage account or a home. 

As a general rule of thumb, individuals should have saved the equivalent of six times their income by age 50.

If they haven't begun saving for retirement, it's never too late to start. You might encourage your parents to open a Roth IRA, which allows individuals to contribute with after-tax money and then collect untaxed investment gains. If your parents are above the age of 50, they'll be able to make catch-up contributions up to $1,000 more than the max contribution, which is currently $6,000 ($7,000 total for those over 50). Their investment portfolio will likely be more conservative as well, with a higher allocation of bonds and fewer stocks to minimize risk since they're closer to retirement.

If you want a more hands-off approach to investing for retirement, you should consider signing up for a robo-advisor service like Wealthfront and Betterment. All you have to do is enter some information about yourself like your investment objectives, time horizon and risk tolerance. Afterward, the robo-advisor will create a portfolio based on your preferences, typically consisting of low-fee index funds or exchange-traded funds (ETFs). As time passes, the robo-advisor will automatically rebalance your portfolio by periodically buying and selling stocks. Both Wealthfront and Betterment offer traditional and Roth IRAs.

Wealthfront

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts

  • Fees

    Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance

  • Bonus

    None

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks

  • Educational resources

    Offers free financial planning for college planning, retirement and homebuying

Terms apply.

Betterment

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.

  • Fees

    Fees may vary depending on the investment vehicle selected, account balances, etc. Click here for details.

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash

  • Educational resources

    Betterment offers retirement and other education materials

Terms apply. Does not apply to crypto asset portfolios.

Zuniga-Sanchez recommends that individuals get precise with numbers and run calculations about how much money they'll be able to save given their time horizon and how much they'll get from Social Security. For example, if one parent receives $2,000 a month from Social Security, you'll want to know how much that covers and how much more will be needed to cover essential expenses such as food, housing, transportation and healthcare. For parents who are undocumented or who stayed at home to take care of children, they'll either receive no, or very few, benefits from Social Security, so you'll want to take that into consideration too.

Lastly, you'll need to understand if your parents have any debt they need to pay off, whether that be credit card debt or a mortgage. Zuniga-Sanchez suggests running a credit report with your parents to get an idea of what debt they may have. You can receive a free credit report each year from AnnualCreditReport.com or use credit monitoring services like CreditWise® and IdentityForce®.

CreditWise® from Capital One

Information about CreditWise has been collected independently by Select and has not been reviewed or provided by Capital One prior to publication.
  • Cost

    Free

  • Credit bureaus monitored

    TransUnion and Experian

  • Credit scoring model used

    VantageScore

  • Dark web scan

    Yes

  • Identity insurance

    No

Terms apply.

IdentityForce®

On IdentityForce®'s secure site.
  • Cost

    UltraSecure Individual: $19.90 per month or $199.90 per year; UltraSecure+Credit Individual: $34.90 per month or $349.90 per year; UltraSecure Family: $24.90 per month or $249.90 per year; UltraSecure+Credit Family: $39.90 per month or $399.90 per year

  • Credit bureaus monitored

    3-bureau credit monitoring, alerts and reports: Experian, Equifax and TransUnion®, with UltraSecure+Credit Individual and UltraSecure+Credit Family plans only

  • Credit scoring model used

    VantageScore® 3.0, with UltraSecure+Credit Individual and UltraSecure+Credit Family plans only

  • Dark web scan

    Yes, with all plans

  • Identity theft insurance

    Yes, at least $1 million with all plans

Terms apply.

Deciding how you'll be able to help out

After you've got an image of your parent's finances, you'll have to figure out how helping them fits within your own situation. Zuniga-Sanchez notes that it's important for children to prioritize their own debt payoff and savings for retirement.

"You need to make sure that you're comfortable with your own budget, with your own retirement, your own expenses and your own debt. And then from there, is where you [figure out] your parent's retirement, " says Zuniga-Sanchez.

For some children, helping out their parents may mean smaller contributions like paying their monthly utility bill or bigger acts of service like having their parents move in with them. 

If your parents are going to move in with you consider how much it might cost you to upgrade to a larger space or how much more you might spend on groceries. According to a 2018 Pew Study, the number of multigenerational households has been on the rise since 1980, with nearly 20% of the U.S. population living in multigenerational households in 2016.

Zuniga-Sanchez notes that it's important for you to speak with your partner about this, especially if partners have different cultural expectations about it. The Pew Study found that Asians, Hispanics and immigrants of all races were more likely to live in multigenerational households than white populations.

You'll also want to consider pooling money together with your siblings to create a separate family emergency fund, in case your parents need extra money to dip into in retirement. If you don't have enough to contribute a large lump-sum upfront to the fund, you can start out by automating a small amount like $50 each month before increasing it. Consider opening a high-yield savings account for your emergency fund. High-yield savings accounts have higher interest rates than traditional checking or savings accounts and allow you a number of free withdrawals, so your money is still liquid.

Select chose LendingClub High-Yield Savings, Marcus by Goldman Sachs High Yield Online Savings account and Ally Online Savings Account as some of the best high-yield savings accounts due to their high APRs and low fees.

LendingClub High-Yield Savings

LendingClub Bank, N.A., Member FDIC
  • Annual Percentage Yield (APY)

    5.00%

  • Minimum balance

    No minimum balance requirement after $100.00 to open the account

  • Monthly fee

    None

  • Maximum transactions

    None

  • Excessive transactions fee

    None

  • Overdraft fees

    N/A

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes

Terms apply.

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.40% APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account

  • Excessive transactions fee

    None

  • Overdraft fee

    None

  • Offer checking account?

    No

  • Offer ATM card?

    No

Terms apply.

Ally Bank Savings Account

Ally Bank is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.20% APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    Unlimited withdrawals or transfers per statement cycle

  • Excessive transactions fee

    $10 per transaction

  • Overdraft fee

    None

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes, if have an Ally checking account

  • Terms apply.

Bottom line

It's easy to shy away from having a conversation about your parent's retirement plan, but the sooner you have it, the better. Once you know how much they've saved, what standard of living they want in retirement and how much debt they have, you'll better understand how to help them out. You'll also want to be honest with your siblings and other family members about how much time and money you can contribute to your parents in retirement.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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