How to include family in your retirement plan

Taking family into account in your retirement plan, and other aspects of annual financial planning, often requires significant change. Your retirement plan when you are married will look completely different than when you are single. You don’t just have to consider your own retirement needs and dreams; you also have to consider that of your spouse. If you have children or parents who depend on you for support, financial or otherwise, that further complicates your planning.

When you create an annual financial plan, or update plans you have already made, you should review these needs and see what may require adjustments. Here’s how your family might influence your retirement plans and how to handle the challenges of considering multiple people’s priorities.

Saving for children to attend college

Many parents want to pay for their children to attend college, but feel the pull of competing financial demands.

“Saving for college can be a daunting task, especially with multiple children,” he says. Michael Briggs, Investment Advisor representing NEXT Financial Group at Horizon Investment Management Group in Springfield, MA. “The advice I give my clients is that when choosing between saving for college and your own retirement, always choose your own retirement first.”

Parents’ contributions to their own Individual Retirement Accounts (IRAs) can be used for their children’s educational expenses. Annual contribution limits, set by the Internal Revenue Service (IRS), for traditional and Roth IRAs are $ 6,000 for 2020 and 2021. People age 50 and older can deposit a recovery contribution of $ 1,000.On the other hand, if you put money into a 529 plan, it cannot be used for non-educational purposes without paying taxes and penalties.

“Just think about being on a plane, they tell you to put on your own mask first and then help the other person. The same applies when choosing where to deposit your funds, ”adds Briggs.

Another benefit of prioritizing retirement savings over education savings is that money in qualified retirement accounts is not counted as an asset on the Free Application for Federal Student Aid (FAFSA). That means they don’t count toward your family’s expected financial contribution.Money in 529 plans on behalf of parents or students counts toward your family’s expected financial contribution and can reduce financial aid by up to 5.64%.

Sharon marchisello, author of the personal finance e-book Live cheap, be happy, get richYou agree that financing retirement should be higher on your list than sending kids to college. Your children have other options for paying for college, including scholarships, part-time work, and student loans, but you won’t be able to borrow for retirement.

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“You help your children more by being self-reliant, so you don’t have to ask for their support in your old age,” says Marchisello.

So first plan what you will save for retirement; Then see what you could save to help your children with college.

Caring for elderly parents

Speaking of caring for parents who are not financially self-sufficient in their old age, check to see if this burden is likely to fall on your family. If the answer is yes, there are proactive steps you can take to address how caring for elderly parents could derail your current and future financial plans.

Long term care insurance

The US Department of Health and Human Services estimates that about 56% of Americans who will turn 65 in 2020 will need long-term care services. Long-term care can be financially devastating. According to Genworth’s 2020 Cost of Care Survey, a month in a private room in a nursing home costs nearly $ 8,821. Imagine paying that expense for months or even years.

It’s best to start planning for this before your parents are really old. “If your parents are approaching 60 and you can afford long-term care insurance, paying the premium now can save you a lot more in the future if one of the parents needs to go to a nursing home,” he says. Oscar Vives Ortiz, a CPA Financial Planner with First Home Investment Services in Tampa Bay-St. Petersburg area of ​​Florida.

Ask yourself if this is the year you need to buy long-term care insurance for one of your parents, or make sure those parents bought it themselves. For each year that you postpone buying this insurance, you will face higher rates depending on the increase in age of the insured; Rates may increase further if health problems arise, or insurance may be impossible to obtain. If your parents are paying, make sure they keep up with their premiums; Sometimes you can sign up for an alert if a senior has not been paying bills.

Either life insurance or an annuity with a long-term care component offers an alternative to long-term care insurance that may be more practical for some families.

As you and your spouse plan for your parents’ long-term care needs, you should also think about yours.

“In many situations, it is almost better financially for your spouse to die than to go to a long-term care facility,” says Richard Reyes, certified financial planner from Financial quarterback.

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She adds that planning for long-term care can also give you more flexibility, since you won’t have to depend on the government, your children, or your neighbors to take care of you; you can make the decisions.

“If you don’t have care insurance or haven’t properly planned for care, obviously the only flexibility you have is what others have planned for you,” Reyes says.

“If you enter Medicaid, your care will be what the government prescribes, and who takes care of you is based on where and when space is available to you, which is not a great solution,” he adds.

There are also many problems with dependence on family. Your children may not live nearby, or they may have their own problems, concerns, and families to deal with. A spouse on whom you depend is likely to be close to your age and have diminished physical abilities.

“When someone talks to me about having long-term care, I tell one of the spouses to lie down on the floor and ask the other to pick them up and take them around the house and in and out of their vehicle”, Reyes . He says.

Life insurance

Life insurance with a vital benefit or a long-term care rider can help pay for long-term care as needed. But life insurance can also be a tool to reimburse family members who help with long-term care after a loved one who needed that care passes away.

“If you feel like you have to spend some of your money caring for your elderly parents, try to make sure that the life insurance policies that have listed you as a beneficiary reimburse you and replace your investments when they die.” says Rick Sabo, a financial planner with RPS financial solutions on Gibsonia, PA.

If your parents don’t have life insurance, can’t afford it, and will likely depend on you for help when they’re older, talk to them about buying a guaranteed universal life insurance policy that you and your spouse will pay premiums. on. Unlike term life insurance, which your parents could survive, you can buy guaranteed universal life insurance that lasts up to 121 years, making it essentially permanent, but at a much lower cost than life insurance. total.

You and your spouse may also want to have your own life insurance policies. The younger you are when you buy it, the less expensive it will be. The policy’s death benefit could be a blessing if the breadwinner or homemaker dies prematurely.

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Retirement Calendar

People of any age can start setting retirement goals by thinking about how they want to live in retirement. Saving will be a lot easier when you know what you’re saving for, says Kevin Gallegos, vice president of sales and operations for Phoenix with Freedom Financial Network, an online financial service for consumer debt settlement, mortgage purchases and personal loans.

Think about where you will live, if you will be moving to a smaller house, if you plan to travel, and if you will want to work part time. Plan to live 80% to 85% of your current income once you retire.

To fully understand what your retirement income will be, make sure you understand any pension you are entitled to, review all your investments, and estimate your Social Security incomeGallegos says.

Planning for retirement with a spouse is more complicated than planning for retirement just for yourself. You will need to create a shared vision of what your retirement will look like. You will also need to agree whether you will both stop working at the same time or whether it makes sense for one spouse to retire first.

Age differences between spouses are common and can create problems in retirement planning. Upon retirement, if you are 66 and your spouse 62, for example, you will be able to get health insurance through Medicare, but your spouse will not do so until age 65.That’s a potential $ 600 to $ 700 a month premium expense to plan for, Reyes says.

Other issues to resolve include when to claim Social Security, how one spouse’s claim decision might affect the other’s benefits, and how to claim pension benefits in a way that is most beneficial to the spouse.

The bottom line

Annual financial planning for a family requires considering the needs and wants of everyone involved. You need to make strategic decisions about financing your retirement, helping kids with their college expenses, caring for aging parents, buying life and long-term care insurance, and planning for retirement for yourself and your spouse.

By planning for each of these items and learning about the different options and consequences of each choice, you are less likely to face unpleasant surprises and financial struggles that could prevent you from retiring when and how you want. Once you have a basic plan, review these decisions and expenses each year to see if any adjustments are necessary.

About the author

Mark Holland

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