When it comes to preparing for retirement, most people are faced with a lot of responsibility — from managing finances to making arrangements for their living situation and healthcare needs. As a child or loved one, there is a good chance that your parents could benefit from extra support and guidance as they enter this new phase in life.
With proper planning and assistance, you can help them navigate retirement easily and ensure they feel comfortable and happy while entering this new chapter. After all, it takes a village — especially when it comes to helping senior parents prepare for an exciting but often stressful phase of life.
Discussing financial options with your parents
The best way to help your parents transition to retirement is by starting with a conversation about their finances. This can be a difficult subject to approach, but it is essential to understand their wants, how much money they have, and what kind of help they may need.
As you broach the topic, you can ease into it by asking your parents general questions about their retirement savings and pension plans. If they seem reluctant to discuss the specifics, try gently probing for more information. For example, you could ask how long they plan to keep working or if they have any ideas about where they want to live during retirement.
Determining if your parents are carrying any retiree debt is also essential. This can be a major burden and cause significant financial stress. If they are struggling with debt, offer to help them develop a plan to pay it off. For example, you could look into consolidation options or have a debt relief company negotiate on their behalf.
Once you have a general idea of your parent’s financial situation, it is time to establish realistic numbers about retirement.
- Help them calculate how much money they will need to cover their expenses if they plan to live off their savings. This will give them a better idea of how long their money will last and whether they need to adjust their budget.
- Estimate their healthcare costs. These can be difficult to predict, but you can use online tools or speak with a financial advisor to get a ballpark figure. Again, this information will help them plan their finances and ensure they have enough leeway to cover their medical needs.
- Calculate their monthly debt payments and the total amount they need to pay it off. This enables them to see the big picture, including how long it will take to become debt free and whether they need to tweak their budget.
- Estimate the costs of maintenance, repairs, and property taxes. This will ensure they have enough money set aside to cover these expenses.
With these numbers in hand, your parents can start to develop a realistic retirement plan.
Reducing unnecessary bills
The first aspect of any realistic retirement plan or any financial plan is to cut any payments or costs that are unnecessary. This can be a big help, especially if your parents are on a fixed income.
There are a few ways you can go about doing this:
- Help them pay off any credit card debt. This will free up money each month that can be used to cover other expenses.
- Cutting costs is another great way to reduce monthly expenses. There are several ways to do this, such as unsubscribing from entertainment services, downsizing their home, and canceling other monthly services they no longer use or need.
- Home sharing is another option to consider. If your parents will be living on a really tight budget, this can help them save money on housing costs, enable them to live in more expensive areas and provide access to extra company.
- Automating their finances. Set up automatic bill payments and transfer money into a high-interest savings account. This will alleviate the need for them to track due dates and help them avoid late fees.
- Working with credit card debt relief services. This can give your parents a fresh start by paying off their debt and turning around their financial situation.
Planning a monthly budget
Once you cut superfluous payments, you can start focusing on the essentials and budgeting around them. With a budget in place, your parents can better control their finances and ensure their money lasts as long as needed.
There are a few strategies to keep in mind when creating a monthly budget:
- Separate their budget into fixed and variable costs. Any budget should consider the monthly essential fixed costs, such as rent or mortgage payments. Variable costs, the portion of a budget that fluctuates, should also be considered. When estimating the latter, it is best to estimate on the high side.
- Keep “wants” in mind. Although your parents should certainly live more frugally throughout retirement if they are also facing debt, they should still be able to keep a “wants” portion of their budget active. This includes anything that they may not necessarily need but want, like family vacations.
- Setting up a retirement account. This will help them save for retirement and take advantage of any tax breaks.
- Contributing to savings is also key. Your parents should be putting most of their savings money toward retirement at this point. But having an additional savings account – also called an emergency account – can be essential for unexpected expenses that could throw a wrench into their budget.
Encouraging a lifestyle change
Retirement can be a big adjustment for your parents as they create an entirely new lifestyle. They may need to downsize their home, sell their possessions, and say goodbye to their former life.
You can help them adjust by encouraging them to incorporate frugal habits for a new lifestyle, such as:
- Cooking at home more often and eating out less
- Selling unwanted possessions and decluttering their home
- Finding free or low-cost entertainment options
By prioritizing, knowing goals, and taking care of themselves, your parents can transition smoothly into retirement.
Finding supplemental income
For many people, finding supplemental income is a necessary part of retirement. This can come from part-time work, a hobby-turned-job, or other creative sources.
With some creativity, your parents can cushion their income and live their ideal life. Here are a few ideas to get started:
- Part-time work
- Start a blog or website
- Sell handmade crafts or goods
- Do odd jobs for neighbors or friends
Preparing insurance policies
As your parents enter retirement, closely examining their insurance policies is essential. This includes health, life, auto, and homeowners insurance. Ensure that all the policies are updated, and that they still effectively cover your parent’s ever-changing needs.
If your parents are on a fixed income, there are a few ways to save on insurance costs:
- Bundling policies. Many companies offer discounts for bundling multiple policies.
- Asking about discounts. There are often discounts available for seniors, good drivers, and more.
- Comparing rates. Rates vary significantly from company to company, so it is important to shop around before purchasing a policy.
As your parents grow older, they may become targets for scammers. It is important to know the types of scams that target seniors and how to avoid them.
Here are a few common financial scams to watch out for:
- Investment schemes. These scams promise high returns with little or no risk. They may be disguised as “can’t miss” investment opportunities. But if something sounds too good to be true, it usually is.
- Telemarketing fraud. In this type of scam, scammers call seniors and try to sell them products or services that they don’t need.
- Identity theft. This occurs when scammers steal seniors’ personal information and use it to open new accounts, make purchases, or commit other crimes.
Sometimes there is only so much your parents can do to pay off their debt. In this instance, debt consolidation should be a consideration. This process can help reduce monthly payments, lower interest rates, and help them retire debt free.
If debt consolidation doesn’t appeal to them, there are a few tips to survive retirement with debt that can help, such as working with a debt relief company or a financial advisor.