How To Factor Family Into Your Retirement Plan

Saving for your child or grandchild's education, caring for aging parents, and providing support for your partner should all be factors you consider when planning for retirement.

Planning for retirement is one of the most important steps you'll make for your personal finances. When your financial life is intertwined with that of a partner, children, parents, and other relatives, it's important to factor those loved ones into your retirement plan. Here's how to consider your family when planning for your retirement.

KEY TAKEAWAYS

• It's important to have open and honest conversations with your closest loved ones about your retirement plans and how those plans might affect them.
• If you have close family to whom you may need to provide financial support, it's important to consider that when developing your retirement plan.
• Saving for your child or grandchild's education, caring for aging parents, and providing support for your partner should all be factors you consider.
• Retirement isn't an age but a dollar amount and it's important to start planning early to ensure you can reach your retirement goals while also factoring in loved ones.

Talk To Family About Retirement

As you're considering your retirement plans, it's important to involve your family in those conversations. After all, depending on your family structure, a number of people could be affected by your retirement plans.

First, if you're married or in a long-term relationship, you'll want to discuss your retirement plans with your partner. Having open and honest conversations about what you hope your retirement will look like can help jumpstart your goals.

There may also be other family you talk to about your retirement plans. For example, if you have children or aging parents, your retirement plans could affect their plans, and vice versa. This is especially true if you plan to financially support your child's college education or your parents' increasing health needs.

Beginning these conversations early ensures everyone is on the same page and can help to avoid confusion or hurt feelings later on. Once everyone's expectations are set, you can start making plans to factor your family into the retirement planning process. Here are some ways in which that may happen.

If you have family in your life, whether they be your spouse, children, grandchildren, or other relatives, you may want to factor them into your retirement plans. That may happen in several different ways.

Saving for Your Child or Grandchild's Education

Many parents or grandparents want to pay for their kids to attend college but feel the pull of competing financial demands.

When given the choice of contributing to your own retirement account or saving for your child's college, it's advisable to prioritize your own retirement. As many financial advisors share, your child can get student loans for college, but you can't get a loan to fund your retirement.

The good news is that you don't necessarily have to choose between one or the other. First, if your budget allows it, you can contribute to both your retirement account and your child's college fund, whether that be a 529 plan, a custodial account, or a savings account.

If you're in the financial position to do so, you can use the money in your own individual retirement accounts (IRAs) to pay for your children's or grandchildren's educational expenses. However, that benefit doesn't work both ways. If you place money in a 529 plan, it can’t be used for non-educational purposes without paying taxes and penalties.

Another benefit of prioritizing retirement savings over education savings is that money in qualified retirement accounts isn’t 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 and won't reduce the amount of financial aid your child may be eligible for.

Sharon Marchisello, author of the personal finance ebook Live Cheaply, Be Happy, Grow Wealthy, agrees that funding retirement should be higher on your list than sending the kids to college. Your kids have other options for paying for college—including scholarships, part-time work, and student loans—but you won't be able to borrow your way through retirement.

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

Tip: Many financial advisors recommend to first plan what you'll be saving for retirement, then see what you might be able to put aside to help with college for your children.

Caregiving for Elderly Parents

If you have aging parents, it's important to determine whether the financial responsibility of their care will fall to you. If that's the case, there are proactive steps you can take to prevent the burden from derailing your own financial plans.

First, discuss with your parents the possibility of purchasing long-term care insurance. The U.S. Department of Health and Human Services estimates that about 70% of Americans who turn 65 will need some kind of long-term care services.

It's best to start planning for this stage of life before your parents are legally considered elderly.

“If your parents are approaching age 60 and you can afford long-term care insurance, paying the premium now may save you much more later if a parent needs to go into a nursing home,” Oscar Vives Ortiz, a CPA financial planner with PNC Private Bank, said.

Every year you postpone buying this insurance, you face higher rates based on the insured’s increased age; rates can increase even further if health problems develop, or it might become impossible to get insurance at all. If your parents are paying, be sure they keep up with the premiums—sometimes, you can sign up to be alerted if an older person hasn't been paying the bills.

Another option is to purchase life insurance with a living benefit or long-term care rider, which can pay for long-term care as it's needed. At the same time, the life insurance policy can be a tool for reimbursing family members who help with long-term care after the loved one who needed that care passes away. This includes yourself, too.
If your parents don’t have life insurance, can’t afford it, and are likely to rely on you for help when they’re older, talk to them about purchasing a guaranteed universal life insurance policy that you or your spouse will pay the premiums on. Unlike term life insurance, which your parents could outlive, you can purchase guaranteed universal life insurance that lasts until age 121, making it essentially a permanent policy, but at a much lower cost than whole life insurance.

Support for Your Partner

If you're married or in a long-term relationship, your partner will almost certainly be a factor in your retirement plan. In fact, you'll ideally do your retirement planning together. As a couple, you'll discuss things like when you each plan to retire (whether it's at the same time or different times), where you plan to live, what you'll do with your time, and more.

Age differences between spouses are common, and these can create issues in retirement planning. At retirement, if you are 66 and your spouse is 62, for example, you will be able to get health insurance through Medicare, but your spouse won’t until age 65. That’s an expense of potentially $600 to $700 a month for premiums that you must plan for, according to Richard Reyes, a certified financial planner for The Financial Quarterback.

It's also important to consider how you and your partner can support each other in case things don't go as planned. As a precaution, you and your spouse should consider life insurance for each other. Purchasing life insurance with each other listed as the beneficiaries can ensure that if one spouse passes prematurely, it doesn't derail the other's retirement goals.

Another thing to consider is long-term care insurance. If one partner ends up needing long-term care services and doesn't have insurance, it could financially cripple the other partner. With this policy, you'll be prepared for the unexpected.

Other issues to sort out include when to claim Social Security, how one spouse’s claiming decision could affect the other’s benefits, and how to claim pension benefits in a way that will be most beneficial to the spouse.

Family Emergency Expenses

When it comes to financial planning, building an emergency fund to prepare for unexpected costs and emergencies is key. And those emergencies don't necessarily end when you retire. It is likely that you will still encounter the occasional broken-down car, the need for a new roof, unforeseen medical bills, and more.

As you're planning for your retirement, consider what financial emergencies could arise, both for you and for your loved ones, and make a financial plan for that. What safety nets can you put in place to ensure those emergencies don't derail all of your financial plans?

One thing to consider is keeping some emergency savings in an easily-accessible account. Rather than leaving all of your excess retirement money invested in the market, consider earmarking a certain amount for emergencies and placing that money in low-risk assets so you can access it easily and without financial consequences at any time.

Retirement Timing

Many people think of retirement as an age, but it's actually a dollar amount. Failing to save appropriately could force you to work long past the age you envisioned leaving the workforce. On the other hand, you could retire early if you're able to save aggressively early in your career.

When considering your retirement timeline, start by thinking about what retirement looks like for you. Ask yourself where you'll live, whether you'll continue to work part-time, whether you plan on traveling, and more. The answers to these questions can help you determine how much income you'll need during retirement.

Once you have an idea of your desired retirement income, you can start to reverse engineer your goals to ensure you save and invest enough to retire on a timeline that fits with your goals.

Should I Save Money To Take Care of My Elderly Parents?

An alternative to saving money for elder care is to buy a long-term care (LTC) insurance policy. These cover many of the costs of assisted living or nursing care and can relieve the financial burden from children. Life insurance is another option that can effectively "pay back" a loved one upon death for costs incurred in their older days.

How Do You Factor Inheritance into Retirement?

If you’ve recently inherited retirement plan assets, planning accordingly can be complicated. To factor this into your plan, you must first consider whether the retirement owner dies before the required beginning date (RBD), who the beneficiary is, and the age of the beneficiary in relation to the age of the deceased at the time of death. Understanding these points of entry can help you decide the next steps.

The Bottom Line

No matter what phase of life you're in, it's important to consider how family will factor into your retirement plan. Whether you're helping children with college expenses, caring for elderly parents, or ensuring your partner will be supported, it's important to make strategic decisions.

In some cases, you may find you need to prioritize your own retirement plans above other financial goals, such as saving for your child's education. However, with proper planning and utilizing all of the financial tools at your disposal, it's possible to meet all of your goals.

If you plan for each of these items and learn about the different options and consequences of each choice, you’re 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 expenditures each year to see whether any adjustments need to be made.