Author Topic: Setting up parents' retirement  (Read 3264 times)

Megatron

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Setting up parents' retirement
« on: September 16, 2013, 12:14:02 PM »
Situation: my parents are immigrants that came over to the US about 20 some years ago. They've worked hard and Dad just hit 60, Mom is 56. They have a paid off apartment building with rental income coming in at 2k monthly (also living in one of the units), cars all paid off,  both still works and stockpiling cash, Mom has a 401k at work but it isn't worth much and hasn't been contributing much to it overtime. both are pretty frugal. way more mustachian than me because of growing up poor. They don't understand and is afraid of the market. I tried to get them to set up Roth IRAs but they always think cash is king. Dad has not much of a retirement plan set up other than some bonds he bought. and they think social security will help a little. They have loan a lot of money to relatives over the years and have supported both my grandparents until they passed away a few years ago. Mom has loan money to relatives (brothers and sisters) and now they are paying her back. So maybe an additional 50K coming back. It's always been culturally acceptable that the oldest son (me) in the family to take care of the parents as they get older. and of course I want to but just wondering if there's more I can do. Set up Roth IRAs for them? As a couple? Just wondering if anyone is in this situation and what you did to help. They have about 100k+ in cash right now getting shitty rates from a bank. parts of me worry because they don't have much savings and I want to get a bigger cushion for them but parts of me don't because I know my sister and I will take care of them no matter what. any thoughts?

footenote

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Re: Setting up parents' retirement
« Reply #1 on: September 16, 2013, 01:05:36 PM »
Try to help them understand that keeping so much of their portfolio in cash is destroying their hard-earned wealth. Maybe some simple not-keeping-up-with-inflation illustrations will do the trick.

Good luck - they are way too young to be all in cash....

SunshineGirl

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Re: Setting up parents' retirement
« Reply #2 on: September 16, 2013, 01:41:45 PM »
With a paid off income property and their housing taken care of, their monthly expenses are probably quite low and might even be covered from the rental income. That should be the goal. And help them be healthy - diet, exercise.

Hamster

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Re: Setting up parents' retirement
« Reply #3 on: September 16, 2013, 02:48:05 PM »
Depending on family/social expectations, is there a possibility that they would put some/all of their savings in your "custodial" care since you will be taking care of them in their old age? In that case, you'd be able to invest in something that gets better returns on their behalf. Just make sure if they give it to you, it's done in a way you don't have to pay taxes on the gift.

Hopefully the $2k per month on the rentals is cashflow after all expenses. And, they have a place to live as Sunshine Girl mentions. Plus social security. Given their naturally mustachian mindset, it sounds like the direct financial "burden" to you won't be too high.

Editorial: I think it's fantastic that you are able/willing to step up to the plate in supporting your parents. When these sorts of multi-generational support systems work well (i.e. not too much interpersonal/intergenerational conflict) I think they are one of the most rewarding/enriching social arrangements for all involved. Especially it builds a sense of caring/support when grandkids see you supporting your parents.

Adventine

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Re: Setting up parents' retirement
« Reply #4 on: September 17, 2013, 08:03:52 AM »
Your parents sound like pretty great people. Fear of investing aside, I'd say they're more prepared for retirement than most people: paid off housing, paid off cars, some passive rental income, etc. You're also a great son for thinking ahead about how you can help them.

Unfortunately it's going to be hard to change their minds about investing. They've lived all their lives in fear of the stock market and, while they may value your opinions, they may find it difficult to accept financial advice from their son. After all, they've been managing money since before you were born.

Seconding SunshineGirl: encouraging them to keep healthy is a great idea because it's hard to argue about the benefits, such as reduced medical expenses and healthier bodies to enjoy their eventual retirement. It won't be hard to introduce changes in this area, whereas you're facing an uphill battle if you keep talking about investing.

If you still want to try getting them to invest, and they're the reading type, maybe gift them some good Mustachian books one of these days?

aj_yooper

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Re: Setting up parents' retirement
« Reply #5 on: September 17, 2013, 02:24:24 PM »
Have your parents protected their real estate property by using, e.g.  liability insurance, a trust, or LLC?  If not, you might want to post a question on the real estate thread here to see what the RE investors would recommend for your family.  (I am not a real estate investor.)  Also, since they are good with real estate, would it make sense for your parents to get another unit, while still maintaining a cash emergency fund?  This would diversify their money across several units, but, of course, not other asset classes.

Abe

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Re: Setting up parents' retirement
« Reply #6 on: September 17, 2013, 07:45:27 PM »
I'm in a similar situation to yours, but my parents were more flexible with retirement accounts. Once I explained that investing doesn't have to involve stocks, they were OK with it. If your parents will let you manage the money, put money into regular IRAs and taxable account. If you need money for expenses, it can come from a taxable account to avoid the IRA withdrawal penalty (which won't apply anyway for your father since he's older than 59.5). Choose a Vanguard fund that will be low-risk / low-yield. They have your and your sister's support in old age, and have income from the rentals, so maintaining the initial investment is more important than trying to save a bunch for retirement.