Mom ‘Didn’t Know What a 401(k) Was.’ How Will You Retire?
Problem: A 23-year-old woman earning $94,000 discovers that her mother has no retirement plan.
“My mom has no retirement savings at age 58,” a software engineer shared recently in a post on the r/PersonalFinance subreddit. “I asked my mom if she had a 401(k), and she didn’t know what a 401(k) was.”
The daughter seems to be starting her career with vigor, mentioning that she is already saving for her future. But as her mother gets older, she looks at how her mother will pay for her living expenses when she retires.
“What should I do?” he asks. “I love my mother and I want to support her, but retirement is unbelievably expensive, and if her health declines to the point where she can’t work, I’ll be the only one to deal with her debts.”
His mother is divorced and earns $28,000 a year, which covers basic expenses – groceries, property taxes, insurance and mortgage payments. However, that leaves little room for savings.
How can this user help his mother prepare for retirement?
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Expert advice: ‘It’s not as bad as he thinks’
We spoke to Tyler End, a certified financial planner and founder of Retirable, who says he’s seen this type of situation before.
At age 58, a person considered “on track” to retirement will usually have several thousand dollars in savings. In fact, the median income for his age group is more than $350,000, according to Federal Reserve survey data.
The good news: Even without saving for retirement, he says, people often have more resources than they realize. Social Security, Medicare and Medicaid can provide a cushion, helping to ensure that an elderly parent’s bad finances don’t affect their children’s future.
“It’s not too late to start making better financial decisions, which is what this woman can do to help her mother,” said End. “First and foremost: it’s probably not as bad as he thinks.”
Even if mom doesn’t know what a 401(k) is, it’s likely that at some point in her career she’s put money aside through a workplace plan or pension. (Employers often have automatic enrollment policies due to recent changes in federal policy.)
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To search for forgotten retirement accounts, they can contact their former employers or search online databases.
Another important step is to check his limited Social Security benefits. If a mother can work past age 60 before claiming benefits, Social Security could replace a large portion of her pre-retirement income, End said. That’s because Social Security payments increase the longer someone waits to claim them.
Since he started saving late, frugal living will probably be necessary. Fortunately, his cost of living is on the low side with a paid-off home, and may drop significantly in retirement due to lower taxes and access to federal health insurance plans.
Downsizing to an affordable home or retirement community can free up money. A few simple budget changes can help him establish an emergency fund.
But the important thing is that the two of them took it as a moment of planning, without hesitation.
“We don’t have the best social infrastructure for the elderly and finances, but we don’t lose benefits between Social Security, retirement communities and Medicare,” said End. “It won’t be as bad as it seems to this woman.”
