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The Others in Your Retirement

Congratulations! You’ve done a great job saving and planning for the future. The retirement that you envision is just over the horizon, so close you can almost taste it.

Uh, wait a minute.

It seems you may need to recalibrate.

Apparently, your retirement plans left out a few people. You may have thought you needed to save enough to provide an income for yourself, or if you’re a couple, for the two of you. But more and more, it’s possible that your savings may have to take care of others as well. According to a November 17, 2018, Wall Street Journal article:

There is a growing number of baby boomers who find themselves caring for both their elderly parents and their adult children, rather than kicking back at retirement age. They face the strain of constant caregiving and derailed dreams, as well as added expenses…

A 2014 study by the Pew Research Center found 52 percent of U.S. residents in their 60s—17.4 million people—are financially supporting either a parent or an adult child…(A)bout 1.2 million support both a parent and a child.”

What’s Going On?

In the long view of human history, retirement, and planning for it, is relatively new. Until the early 20th century, most people worked as long as they had to, and then they died. The few who outlived their working years experienced something called “old age”—not “retirement”—and usually ended up being cared for by their extended families. In fact, the earliest nationally-administered pensions (beginning in Germany in 1889), were characterized as “old-age social insurance.” They were intended to protect from poverty the few elderly who had exceeded life expectancy, not to fund a retirement filled with golf, grandchildren, travel, and volunteering.

But as more people lived longer, 65, once well past average life expectancy, became the age when you stopped working to enjoy your golden years. In the last half of the 20th century, this thing called “retirement” usually featured Social Security and an employer-funded pension. Personal savings was a supplement to retirement, not the source of it.

Besides having their retirement funded for them, this first generation of true retirees by and large didn’t have to consider their parents; as a generation with shorter lifespans, many of them had already passed away. In contrast, the current retirees or about-to-be-retirees of the Baby Boom generation find a different scenario as they approach 65: many of their parents are still alive, and are now in old age, with the attendant need for support and assistance. And their numbers are growing each year.

At the same time, there has been a much slower transition to adulthood for the generations following the Boomers. For both social and economic reasons, these younger cohorts are slower to settle into careers, get married, or achieve financial self-sufficiency. Consequently, many Boomers have boomerang children: once sent out, they’ve come back.

Additionally, a growing number of retirees find themselves providing more than shelter and financial assistance for their adult children: In a second round of parenting, they either raise or provide regular child care for grandchildren.

Real Life: 10 Years of Plans Overwhelmed by Others

The WSJ article relates the circumstances of Barb and Brian, an Arkansas couple who meticulously mapped out a 10-year transition to retirement. The couple planned to convert their large home to a bed and breakfast, with a sound studio in the garage where Brian could record and produce music. After 10 years of diligent preparation, they were almost ready to live their retirement dream.

But Barb’s mother Marlene was in failing health and didn’t have the financial resources to afford an assisted-living facility. Shortly before their anticipated retirement date, Marlene moved in with Barb and Brian, occupying a basement unit that had been renovated to a luxury suite with a kitchen, two bedrooms, and a living area.

Four months later, Barb’s 25-year-old daughter Rebecca also returned home because of deteriorating physical and mental health. Rebecca receives only a small monthly Social Security disability payment, leaving Barb and Brian to “pay for clothes, housing, food, car insurance, and everything else that is beyond Rebecca’s meager income.”

To keep the family afloat, Barb has postponed her retirement indefinitely, while Brian stays home to be a “day-shift caregiver.” Any retirement aspirations are on hold. “I can make all the plans in the world right now, and it doesn’t mean anything,” says Barb.

How Could This Change Your Retirement Planning?

The example above is unique, but not extreme. How many retirement plans are designed to accommodate the inclusion of other people? How many retirees could absorb these additional financial costs without incurring significant emotional and financial stress?

The very real possibility that others might impact your retirement might prompt a reassessment of your saving strategies and retirement plans. For example:

  • • How much you save. A retirement calculator can give you an estimate of how much you’ll need to provide a regular income. But under these “other” scenarios, you might need more money, and perhaps the flexibility to spend chunks of it instead of just drawing a monthly check.
  • • Where you save. For savings in tax-deferred accounts like IRAs or 401(k)s, every dollar withdrawn in retirement adds to taxable income. That means unusual expenditures, like a large withdrawal to pay for an adult child’s medical care, may also have large tax costs. And these extra withdrawals also increase the possibility of bumping into a higher marginal tax rate.
  • • The percentage of saving you allocate to providing retirement income. Every retirement plan has to consider irregular expenses and the reserves required to handle them. If you have saved $1 million, you can’t allocate all of it to produce income; something has to be set aside for the unexpected. But how much? Adding another person to your retirement almost certainly lowers the amount available for retirement income.
  • • Where you live. The retirement ideal of downsizing to a two-bedroom condo to rid yourself of homeowner responsibilities might not be the best plan if you end up adding others to your living arrangements. Staying in your current home might be more expensive, but also the most practical place to accommodate extended family.

You Must Look Downstream and Upstream

Narrowly-focused financial strategies sometimes overlook the fact that a household economy often has connections to others further downstream (parents) or upstream (children). This is especially true of retirement planning, where the emphasis is on saving enough to be able to retire. But beyond hitting your accumulation objectives, there may be other conditions lurking in your retirement future that must be addressed.

If you’re over 50, you probably have a good idea as to whether your retirement could potentially include others. If it does, the financial challenges can be daunting. Adding others to your retirement could change everything—even your ability to retire.

And for most of us, saying “no” to others isn’t an option. Because most likely, the others are family members. Love and loyalty usually compel us to forgo personal comfort to help them. Which is what good families do.

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This article was prepared by an independent third party. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Avenue, 9 Fl., New York, NY 10017, 212-541-8800. Securities products and advisory services offered through PAS, member FINRA, SIPC. This firm is an agency of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. Wealth Advisory Group LLC is not an affiliate or subsidiary of PAS or Guardian. Wealth Advisory Group LLC is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. Neither Guardian, PAS, Wealth Advisory Group, their affiliates/subsidiaries, nor their representatives render tax or legal advice. Please consult your own independent CPA/accountant/tax adviser and/or your attorney for advice concerning your particular circumstances. 

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Submitted by Elozor Preil

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