Helping Parents With a Late-Stage Retirement Plan

Got a bit of a pickle here, mate. So, my folks, both pushing 60, run their own business – no employee retirement scheme or anything like that. They pull in about 300K annually, but no clue how much of that’s pure profit. There’s a pension from the 80s with around 20 grand in it, and social security will chuck them $1700.

I recently got my old man a RothIRA – stuck some in VOO, VTI, VXUS, BND. They’re almost done paying off the house, reckon it’s worth about 650K, and I figure they could flog the business for around 150K.

I’m getting a bit antsy thinking about them getting on and me and the missus having to pick up the tab. Not keen on the idea of our kiddos missing out because of it. Plus, dad works his arse off and just wants to hit the golf course a few times a week.

Got any ideas for helping the old birds out or setting them up a bit better?

Gary V

Understanding that your parents might not be financially ready for their impending retirement can be nerve-wracking. However, the fact that they have a successful business, some savings, and significant home equity is a good start. Here are some strategies to ensure your parents can transition into retirement without burdening you financially.

Firstly, it’s crucial to understand their overall financial situation. This includes their income, expenses, assets, and liabilities. It’s also important to understand their lifestyle expectations during retirement. Will they downsize their living situation? Will they travel? What kind of healthcare might they need? Answering these questions can help create a more comprehensive retirement strategy.

Boosting Their Retirement Savings

You’ve already made a great start by opening a Roth IRA for your dad. Make sure they are maximizing their contributions. As they are over 50, they can take advantage of catch-up contributions, allowing them to contribute more than the standard limit. Investing in a diversified portfolio, as you have done, is an excellent strategy.

You may also want to consider a SEP IRA (Simplified Employee Pension Individual Retirement Arrangement). As business owners, your parents can contribute up to 25% of their income or $61,000 (whichever is lower) in 2023.

Leveraging Their Assets

If your parents are comfortable with the idea, they can sell their house and downsize. This can free up a significant portion of equity which can be invested to generate a steady income during their retirement. They could also look into a reverse mortgage, but this should be considered carefully due to its potential pitfalls.

Selling the business could also provide a boost to their retirement fund. It’s essential to get a realistic idea of the business’s worth, though. Hiring a professional appraiser might be a worthwhile investment.

Planning for Healthcare

One of the most significant expenses during retirement is healthcare. It’s crucial to account for this in their retirement plan. Your parents should explore getting long-term care insurance, which could help cover costs not covered by Medicare, such as home care or assisted living.

Professional Advice

Lastly, it could be beneficial to hire a certified financial planner (CFP) who specializes in retirement planning. A CFP can help assess your parents’ situation and provide a detailed, personalized retirement plan. They can also help you understand tax implications and strategies to optimize their income during retirement.

Helping your parents to retire comfortably will require planning and potentially some tough conversations, but it’s absolutely achievable. Remember, it’s never too late to start planning for retirement, and there are plenty of resources available to help along the way.

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