As your parents grow older, retirement will become an increasingly relevant topic for them. While some parents have everything planned out on their own, many need help with setting themselves up for retirement. Here are some of the top steps you should include as you help your parents plan for their retirement.
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Minimize Housing Expenses
One of the first steps that should be included in your parents’ retirement plan is paying off their home. Retiring with a fully paid-off house is a great way to minimize recurring expenses. Without a mortgage to pay, your parents will only have maintenance and property taxes to worry about. This, in turn, will allow their savings to stretch much farther than they otherwise would.
Estimate Investment Income Using the 3 Percent Rule
If your parents have been investing in their retirement accounts over their working years, they should have a decent amount of investment income in retirement. A key part of planning for retirement, though, is knowing how much they can afford to take out every year. A great rule of thumb for this is the 3 percent rule, which states that retirees can safely withdraw 3 percent from their investment accounts each year. This amount represents a safe absolute minimum that will effectively guarantee your parents’ savings won’t run out.
Make Plans to Augment Income
If 3 percent of your parents’ savings each year will cover their living expenses, they’re financially independent and shouldn’t need additional income. If that isn’t the case, though, the plan you help them create should include other options. Social security is the obvious choice, and your parents can adjust their monthly payments upward by choosing to put off retirement for a while if they need to. One or both of them may also need to consider working part-time to supplement their income.
Don’t Leave Out Later Life Care
While most people retire in their mid-60s, it’s still important to think about the eventual expenses associated with assisted living or nursing home care. If your parents are in good health, you may have 10, 15, or even 20 years before these expenses actually affect their budget. By getting a basic idea of what later life care will cost and budgeting for it now, though, they will be better equipped to handle those expenses when the time comes.
Every retirement plan is unique, and your parents’ income, savings, expenses, and lifestyle will dictate how they should set themselves up for their golden years. By including these four things in their plan, you can help them create a strategy that’s right for them.