A 23-year-old software engineer earning $94,000 has recently unearthed a troubling situation: her mother, aged 58, lacks any retirement savings.
In a post on the subreddit r/PersonalFinance, the daughter revealed, “I asked my mom if she has a 401(k), and she didn’t know what a 401(k) was.”
While the daughter seems to be on a promising career trajectory and is actively saving for her own future, she is now faced with the question of how her mother will manage living expenses during retirement.
“What should I do?” she inquired. “I love my mom and want to support her, but retirement is incredibly expensive, and if her health deteriorates and she can’t work, I will be solely responsible for covering her bills.”
Currently, her mother, who is divorced, earns $28,000 annually, which barely covers essential expenses such as groceries, property taxes, insurance, and loan payments, leaving little opportunity for savings.
What steps can this user take to assist her mother in preparing for retirement?
Expert Insights: Addressing the Situation
In discussions with Tyler End, a certified financial planner and co-founder of Retirable, it was noted that situations like this are not uncommon.
A typical individual at age 58 who is considered “on track” for retirement would normally have several hundred thousand dollars saved, with median net worth for this demographic exceeding $350,000, according to Federal Reserve survey data.
End highlights that even without retirement savings, individuals often have more resources at their disposal than they realize. Programs like Social Security, Medicare, and Medicaid can provide essential support, ensuring that a parent’s financial challenges do not hinder their children’s future.
Even though the mother is unfamiliar with what a 401(k) is, she may have previously set aside funds through a workplace plan or pension, given that employers frequently have auto-enrollment policies due to recent federal legislation.
To identify any forgotten retirement accounts, she is advised to reach out to former employers or consult online databases.
Another crucial step is assessing her estimated Social Security benefits. If her mother is able to work into her 60s before claiming benefits, End suggests that Social Security could replace a substantial portion of her pre-retirement income, as payments increase with delayed claims.
Given her late start in saving, financially conservative living will likely be necessary. Fortunately, her living costs are manageable with a paid-off home, and these may further decrease in retirement through lower taxes and access to federal health insurance.
Downsizing to a more economical residence or relocating to an affordable retirement community could free up funds, while even minor budgeting adjustments might help her establish an emergency fund.
The key takeaway for both is to use this situation as an opportunity for planning rather than panic.