Mil­len­ni­als might be hurt­ing their par­ents’ plans for re­tire­ment

The Charlotte Observer (Sunday) - - Business - BY MELISSA LAMBARENA NerdWal­let

When Me­lanie Lock­ert grad­u­ated with a mas­ter’s de­gree in per­for­mance stud­ies in 2011, she was over­whelmed with stu­dent loans. Her many at­tempts to tap the “Bank of Mom and Dad” had failed.

She had al­ready worked three jobs to pay off $13,000. After jug­gling mul­ti­ple jobs, re­lo­cat­ing from New York to Port­land, Ore­gon, and trim­ming ex­penses, she paid off the re­main­ing $68,000 in 2015. Now 34, she ac­knowl­edges that tack­ling it her­self may have been for the best.

“If my par­ents had agreed to fund my ed­u­ca­tion, I think it would have kind of been at the ex­pense of their own re­tire­ment,” says Lock­ert, a writer and founder of the Dear Debt blog.

In­deed, plenty of par­ents may al­ready be be­hind on that count. Forty­five per­cent of baby boomers have noth­ing saved for re­tire­ment, ac­cord­ing to a 2019 study by the In­sured Re­tire­ment In­sti­tute, a fi­nan­cial ser­vices trade group. And with av­er­age U.S. life ex­pectancy now at about 78 years, a nest egg is key.

“Ex­pec­ta­tions I don’t think are set prop­erly for how long peo­ple are go­ing to live, so I think most fam­i­lies are go­ing to need ev­ery penny (for re­tire­ment),” says Justin Castelli, CEO and fi­nan­cial ad­viser at RLS Wealth Man­age­ment in Fish­ers, In­di­ana.

If your par­ents aren’t on track for re­tire­ment, ac­cept­ing a mone­tary gift from them can cre­ate more fi­nan­cial prob­lems than it solves.

WHAT TO CON­SIDER

A gift from your par­ents could jeop­ar­dize their po­ten­tial re­tire­ment earn­ings, but it could even­tu­ally cost you, too, if you’re their fi­nan­cial Plan B for their golden years. Be­fore ac­cept­ing money from them, take the fol­low­ing steps.

Have a money talk.

To pre­serve qual­ity of life in re­tire­ment, fi­nan­cial plan­ners gen­er­ally rec­om­mend sav­ing enough to re­place about 70% of pre-re­tire­ment in­come. Castelli sug­gests it de­pends on your par­ents’ goals. Find out where Mom and Dad stand. If they aren’t sure, a fee-only fi­nan­cial ad­viser can of­fer a clearer pic­ture.

Un­der­stand the

costs. Par­ents will be re­quired to file a gift tax re­turn for any amount above $15,000 per par­ent. And de­pend­ing on what ac­count the money is com­ing from and when, ad­di­tional taxes and penal­ties may ap­ply.

Out­line ex­pecta

tions. Will you be fi­nan­cially re­spon­si­ble for your par­ents in their later years? If so, con­sider those fu­ture costs. For ex­am­ple, a 65-year-old cou­ple who re­tired in 2018 would need to have saved $280,000 to cover health and med­i­cal ex­penses through­out re­tire­ment, ac­cord­ing to a Fi­delity es­ti­mate. Mom and Dad may be able to help you out to­day, but at what cost for to­mor­row?

Weigh the fam­ily

dy­namic. If they give you money, your par­ents could also feel pres­sured to help your sib­lings and fur­ther hurt their re­tire­ment sav­ings. And if they help only you, it could lead to jeal­ousy or hurt feel­ings.

●Make sure you truly need help. As she was pay­ing down debt, Lock­ert says, her work ethic and cre­ativ­ity were pushed to the limit, forc­ing her to think dif­fer­ently about money. “I felt more con­fi­dent pay­ing large bills,” she said. If you can bud­get, save and take ad­van­tage of al­ter­na­tive re­sources, you might tackle fi­nan­cial goals your­self.

FORTY-FIVE PER­CENT OF BABY BOOMERS HAVE NOTH­ING SAVED FOR RE­TIRE­MENT, AC­CORD­ING TO A 2019 STUDY BY THE IN­SURED RE­TIRE­MENT IN­STI­TUTE, A FI­NAN­CIAL SER­VICES TRADE GROUP.

EX­PLORE OTHER OP­TIONS

De­clin­ing a gift from your par­ents doesn’t mean you’re out of op­tions.

●Make it a loan, not a gift. A fam­ily loan could be a win-win: a low in­ter­est rate, no credit check and flex­i­ble terms for you, and potentiall­y even a profit for your par­ents. You can con­sult an at­tor­ney or opt for a do-ity­our­self prom­is­sory note. But it’s not with­out risks. “Be­cause it’s an of­fi­cial loan, there are the nor­mal av­enues of reper­cus­sions if the loan is de­faulted on,” says Kyle Moore, a cer­ti­fied fi­nan­cial plan­ner and founder of Quarry Hill Ad­vi­sors in St. Paul, Min­nesota. De­pend­ing on the terms, par­ents can call col­lec­tions, take you to court or seize col­lat­eral if you fail to pay it back.

Re­search other re

sources. If home­own­er­ship is a goal, for ex­am­ple, the Depart­ment of Hous­ing and Ur­ban Devel­op­ment and your state’s hous­ing fi­nance agency fea­ture pro­grams de­signed for lower-in­come or first­time home buy­ers.

Con­sol­i­date or refi

nance debt. With a good credit score (690 or higher), you can gen­er­ally qual­ify for bet­ter in­ter­est rates to re­fi­nance stu­dent loans, trans­fer debt to a balance trans­fer credit card or con­sol­i­date other loans. Re­gard­less of your credit score, a debt man­age­ment plan from a non­profit credit coun­sel­ing agency may also lower in­ter­est rates for some debts.

This ar­ti­cle was pro­vided to The As­so­ci­ated Press by the per­sonal fi­nance web­site NerdWal­let. Melissa Lambarena is a writer at NerdWal­let. Email: mlam­barena @nerdwal­let.com. Twit­ter: @lissalam­barena.

BEN MAR­GOT AP file

Whether you’re ask­ing your par­ents for fi­nan­cial help, per­haps to re­lieve col­lege debt, or they’re of­fer­ing it, think twice be­fore ac­cept­ing. If Mom and Dad aren’t on track for re­tire­ment, it could end up cost­ing ev­ery­one.

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