If you are a baby boomer, your children are adults by now. Your family, the one you built, probably has children of their own. You might even have great-grandchildren. You’ve done your job. You raised your family, sheltered and nurtured them, and taught them your values. If they got married you stood by them, maybe gave away the bride. And when they had children, you probably shared your experiences, and marveled at how much things have changed since you started your family. From the ban on baby powder to back is best for sleep…
But, have you talked to your children and grandchildren about retirement?
If you are retired or getting close, this is likely something you’ve spent a lot of time thinking, planning and saving for. But only 42 percent of Generation X have calculated what they need to retire. And of those who have, forty percent did not include health care costs in that calculation. Health care costs that will likely consume a third of annual expenses.
Why was such a large chunk of spending missed? Over half of the younger generations just aren’t sure how to calculate the costs, and a quarter believes that Medicare will cover them. For most, that simply isn’t true.
More than half of the generation born between 1961 and 1981 have less than $100,000 saved for retirement. And 15 percent of Millennials list winning the lottery as part of their retirement strategy. Counting on winning the lottery certainly won’t earn any awards for realistic planning. The odds of hitting the jackpot in Powerball are 1 in 292 million! You have a better chance of being struck by lightning—twice!
About two-thirds of Americans are counting on at least partially funding their retirement with inheritances. Two guesses where they believe that money will come from… Unless there is a very wealthy aunt or uncle in your family, that means your children and grandchildren are counting on what you leave them.
In contrast, only 56 percent of retirees expect to leave money to their heirs, the average amount anticipated at around $177,000. Typically, due to debts and bad spending habits, that sum is all but gone in an average of five years.
It paints a pretty clear picture: The next generations need to plan and save for themselves when thinking about retirement.
Now is the perfect time to share with your family what you’ve learned. What mistakes did you make that you might be able to save them from repeating? Is it something as simple as “start early?” Or a wake up like “you’ll spend more than you imagine in retirement?”
By talking to your family, your children and grandchildren, about retirement, you are opening the door for questions. Hopefully, you are also setting the stage for future dialogue with a financial advisor.
You know that retirement is complicated. You also probably suspect that it will only become increasingly complex as the years progress. By the time your grandchildren retire, who knows what retirement will look like?
Your family can’t count on chance, or inherited dollars; they need to build their own retirement nest egg. They need their own plan. Sharing your experience--how you saved, what steps you took, and how you developed your plan--has a dual purpose.
The first is obvious, for your family to learn from your successes and failings—even if it is as simple as find and hire a financial advisor you trust. Hind sight tends to be 20/20, and wouldn’t you have liked someone you trust, who you know cares, to sit down and tell you what they should have done.
Additionally, it will give your family insights into how to manage their expectation for future financial assistance. Once you are retired your income is fixed. Unless you’re open to going back to work someday, what is in your retirement accounts will not be growing like it did in your working days. Kids, even the adult versions, have been trained since birth to seek out their parents for help. Even money help. It’s important they understand that you do not have unlimited dollars, and there is a limit to the length your purse strings will stretch.
This doesn’t mean you have to share everything with your family. They don’t need to know how big the balances are in your accounts, or what your expenses are, but giving them a clearer picture can possibly help them envision their own future a little better. It could certainly discount the notion that their entire retirement would be bankrolled by inheritance, if that is in fact not the case.
I urge you to talk to your family. Share with them the lessons you’ve learned, and the ones you wish you’d learned earlier. Impress on them how complex retirement can be. So that hopefully, when it’s their turn, they are ready. And they might pay it forward and talk to their kids and grandkids.
Insured Retirement Institute: Don’t You (Forget About Means): Third Biennial Study of the Retirement Readiness of Generation X and Will Millennials Ever Be Able to Retire?
CBS: Odds of winning Powerball jackpot less than being hit by lightning — twice
Betterment: You Received an Inheritance, Now What?
CNN Money: Average American inheritance: $177,000