Incorporating family into your retirement planning — and other aspects of annual financial planning — often requires significant changes. When you’re married, your retirement planning will look completely different from when you were single. You not only have to consider your needs and retirement dreams; You also have to consider your spouse. If you have children or parents who depend on you for financial or other support, this further complicates your plan.
When you create an annual financial plan—or update plans you’ve already made—you need to review these requirements and see what adjustments may be needed. Here’s a look at how your family can get involved in your retirement plans and how to manage the challenges that come with considering many people’s preferences.
savings for kids to go to college
Many parents want to pay for their kids to go to college, but feel the pull of competing financial demands.
“College savings can be a daunting task, especially with many children,” says Michael Briggs, an investment advisory representative for Next Financial Group at Horizon Investment Management Group in Springfield, MA. “The advice I give to my clients is that when choosing between college savings and your retirement, always choose your retirement first.”
Parents’ contributions to their own Individual Retirement Accounts (IRAs) can be used to fund their children’s educational expenses. The annual contribution limit—established by the Internal Revenue Service (IRS)—for both traditional and Roth IRAs is $6,000 for 2020 and 2021. For individuals age 50 and older, they can collect a catch-up contribution for up to $1,000.On the other hand, if you put money into a 529 plan, it cannot be used for non-educational purposes without paying taxes and penalties.
“Just think of being on a plane—they tell you to put on your mask first and then have the other person help you out. The same applies when choosing where to put your funds,” says Briggs. Is.”
Another benefit of prioritizing retirement savings over education savings is that money in qualified retirement accounts does not count as an asset on the Free Application for Federal Student Aid (FAFSA). This means that they are not included in the expected financial contribution of your family.Money in 529 plans in the name of parents or students counts towards your family’s expected financial contribution and can reduce financial aid by up to 5.64%.
Sharon Marchisello, author of the Personal Finance eBook live cheap, be happy, be rich, agree that retirement funding should be higher on your list than sending the kids off to college. Your kids have other options to pay for college—including scholarships, part-time work, and student loans—but you won’t be able to borrow your way through retirement.
“You help your children more by becoming self-sufficient, so you don’t have to ask for their support in their old age,” says Marchicello.
So first plan what you will be saving for retirement; Then see what you can set aside to help with college for your kids.
caring for elderly parents
Speaking of taking care of parents who are not financially independent in their old age, review whether this burden is likely to fall on your family. If the answer is yes, then there are proactive steps you can take to avoid how caring for an elderly parent can derail your current and future financial plans.
long term care insurance
The US Department of Health and Human Services estimates that approximately 56% of Americans over the age of 65 will need long-term care services in 2020. Long-term care can be financially disastrous. According to Genworth’s 2020 Cost of Care Survey, a month in a private room in a nursing home costs about $8,821. Imagine paying off that expense for months or even years.
It’s best to start planning for this before your parents get really old. “If your parents are approaching age 60 and you can afford long-term care insurance, paying premiums can save you a lot of money later if the parent has to move to a nursing home. require,” says CPA financial planner Oscar Vives Ortiz. First Home Investment Services in Tampa Bay-St. Petersburg area of Florida.
Ask yourself if this is the year you need to buy long-term care insurance for one of your parents — or make sure those parents buy it for themselves. Every year when you postpone buying this insurance, you face higher rates based on the increased age of the insured; Rates can go up further as health problems develop, or it may be impossible to get insurance at all. If your parents are paying, make sure they pay the premium—sometimes, if an older person isn’t paying the bills, you can sign up to be alerted.
An annuity with either life insurance or a long-term care component provides an alternative to long-term care insurance that may be more practical for some families.
When you and your spouse are planning your parents’ long-term care needs, you should also think about yourself.
“In many situations, it’s almost better for your spouse to die financially than to go to a long-term care facility,” says Richard Reyes, certified financial planner at The Financial Quarterback.
He adds that planning for long-term care can also give you more flexibility, where you don’t have to rely on the government, your children, or your neighbors for your care; You will be able to call the shots.
“If you have no care insurance or haven’t adequately planned for care, clearly the only flexibility you have is what others have planned for you,” Reyes says.
“If you go on Medicaid, your care will be what the government determines, and who gets your care based on where and when space is available to you—not a good solution.”
There are also many problems with being dependent on the family. Your children may not be around or have their own issues, concerns, and families to take care of. The spouse you are dependent on will probably be closer to your age and have less physical abilities.
“When someone gives me lips about caring for a long time, I ask one of the spouses to lie on the floor and the other to pick them up and move them around the house and in and out of their vehicle. Tell me to go,” Reyes says.
Life insurance with a survivor benefit or long-term care rider can help pay for long-term care as it is needed. But life insurance can also be a tool to reimburse family members who help with long-term care after the loved one who needs that care passes away.
“If you feel that you have to spend some of your own money to take care of your elderly parents, try to make sure that any life insurance policy that they have listed you as a beneficiary will pay you. and to recoup your investments upon his death,” says Rick Sabo, financial planner at RPS Financial Solutions. In Gibsonia, PA
If your parents don’t have life insurance, can’t afford it, and are likely to rely on you for help as they grow up, talk to them about buying a guaranteed universal life insurance policy. Which you and your spouse will pay. on premium. Unlike term life insurance, which can be survived by your parents, you can buy guaranteed universal life insurance that lasts till the age of 121, making it essentially a permanent policy, but unlike whole life insurance. At a much lower cost in comparison.
You and your spouse may also want to carry your own life insurance policies. The younger you are when you buy it, the less expensive it will be. The death benefit of the policy can be a godsend if an earner or housewife dies prematurely.
People of any age can start setting retirement goals by thinking about how they want to live during retirement. Saving…