Vol. 32 - Being your parent’s retirement plan
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:
Naseema McElroy: [00:00:00] All right, Nurses on Fire. So we are back with ours, financial planner, Leisa Peterson. And today we're going to talk about kids being their parents' financial plan. And so I've 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, this generation of people have a huge financial responsibility. That's not a small sum to, think about spending on, yeah. Extended family. And so I wanted to talk about that and wanting to talk, About what does that mean for millennials and what they should be preparing for?
What, you know, just, what does it mean in general? Yeah,
Leisa Peterson: [00:00:59] so it's pretty serious when you've got, you know, depending on how much these folks are making. I mean, 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 is probably taking from retirement and putting into, you know, their parents living expenses.
So, I think that this is one of those things that, I mean, we're talking about it here because I think we want to bring awareness to the problem. We also want to. Talk about how do we avoid being that person someday, where we need to rely on our kids to take care of us? we don't know what the future will look like.
I mean, 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.
Right. 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, is that has something to do with why these boomers are needing to be supported by their millennial children.
Naseema McElroy: [00:02:29] Yeah, it's scary to me because I'm thinking like that is a huge chunk of change.
When you look at millennials annual salaries, I mean, 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 like take home pay, in order to help family.
and so it was pretty scary. And so, like you said, on one hand, we need to look at like, if this is our reality, how do we plan for this? And then on the other hand, how do we stop perpetuating the cycle? So we don't have to do this as well, to art, to the next generation, right? Oh,
Leisa Peterson: [00:03:22] No, 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, 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 you financially support themselves. Like a divorce is tragic, right. , from a financial perspective. So. 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. I mean, 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 it. You, for all those years of living, , into your eighties or nineties or beyond.
Naseema McElroy: [00:04:33] I didn't even think about that. That what comes to mind for me is a lot of people who maybe are first generation Americans or first generation too. Make it right. The first generation of people who have actually had a well established career, but yet the expectation has always been to give back to reach back, to serve your family.
And so, 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 kind of. 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.
like, so. What are we, what do we do?
Leisa Peterson: [00:05:34] Well, I think that there are a lot of different things. you know, 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 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 mom's retirement. So I think that. What's really important too, is that sometimes in life, when those upsets happen and so divorce or something happens like, 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 got to learn new skills. You've got to go back to school. You've got to get trained in something else and realize that 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, you know, even part time, it's going to alleviate situations. And I just always see people right. Thinking, Oh, I'm going to 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 going to take care of your retirement, for example, going out and getting training earlier, rather than later, wouldn't be a bad idea.
I mean, even like for us, one of the jobs that many of us digital, you know, folks that run these digital businesses is like virtual assistants and. It's a great job for someone who is looking to like 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 getting a need to dig in and learn a whole bunch of new skills in order to do that job.
Naseema McElroy: [00:07:55] Yeah, that's true. Me selfishly. I'm just in the back of my mind. Well, I'm supporting my parents and then they can come live with me then maybe I don't have to pay for child care, which within say me, which would then say at me a couple thousand dollars a month, which day it's just a wash.
I could just pay them instead of just paying all this money for childcare
Leisa Peterson: [00:08:23] Touché.
We totally did that when my kids were young, my mom, we like worked out a deal and she kind of hair 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.
Naseema McElroy: [00:08:41] It's nice to have that. It's nice to have that. I think what's important is that. Because this 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 most important things is understanding the importance of having longterm savings through retirement accounts or whatever, and making sure that you don't put that off thinking that there's always going to 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 generations 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 a way that other people can.
Leisa Peterson: [00:10:05] Most definitely. I mean, you mentioned earlier about having a rental property and tear retirement is a great way. I mean, 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 seen 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 looked back in the past and think, I wish I had, you know, not invested in myself. Like we just never, we, I 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, well, what could I learn?
How could I improve my 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 cause 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. 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.
Naseema McElroy: [00:11:36] Yeah, I think that's the key takeaway as 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 generations 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 kind of push off into the back of our minds, because again yeah.
And we will continue to perpetuate this cycle. So yeah, this has been a good conversation, Lisa, and it was really eye opening for me because, I've kind of been in that mindset. Like I'll probably have to help my dad or my parents, you know, 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 needed.
And so this is right on time.
Leisa Peterson: [00:13:11] Awesome.
Naseema McElroy: [00:13:13] All right. Well, thank you as always, Lisa, this has been a great conversation.
Leisa Peterson: [00:13:17] Thank you.
Hey there I’m Naseema
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