The Most Common Money Mistakes Parents Make While Planning for Retirement

personal finance Jun 01, 2021
Planning for retirement

Retirement feels impending enough to make you sweat but far-off enough that you don’t give it much thought. But whether you’ve started planning five years ago or five days ago, there are a few potential mishaps you’ll need to watch out for — for your own sake, as well as your kid’s.

“Huge numbers of people have not even bothered to figure out what it will cost to live in retirement at all,” says award-winning personal finance journalist Jean Chatzky. And yet, running out of money in retirement is a common fear: Fifty-one percent of women aged 60 and over worry about outliving their savings, according to the National Council on Aging, and 52 percent are worried about becoming a burden to their families — a full 12 percent higher than men.

The main takeaway here? Start now.

1. Relying on someone else.

You might’ve grown up with a mother who didn’t take part in the family’s financial planning, but (thankfully) times have changed. “As women, we need to be aware of our financial situation and not rely on someone else to take care of it,” says Juli McNeely, owner, and president of McNeely Financial Services. “I think there is a great amount of opportunity for us to learn and educate ourselves on what we need to be doing

If you’re working with a financial advisor (which McNeely recommends, no matter what life stage you’re at), make sure that you’re part of the process. Asking lots of questions and following up on where you stand financially could mean the difference between early and late retirement.

2. Continuing without a safety net.

If you’re more than 10 years away from retirement, you can and should work with a financial advisor to plan for your retirement. For instance, you might consider investing in an annuity. Whether you deposit a lump sum or make payments over time, an annuity can gain interest and, when you’re ready to retire, will yield you a guaranteed paycheck.

Organizations like The Alliance for Lifetime Income are focused on annuities as a means of preservation for retirees who cannot live off Social Security on their own. When working with clients, McNeely recommends using an annuity to cover basic, fixed living expenses and as a supplement to social security and other investments, you may have made.

3. Ignoring your 401(k).

Opting for automatic enrollment into your company’s 401(k) is certainly a step in the right direction. But not checking in regularly on how much you’re putting away or increasing your contribution year over year is the opposite of taking ownership over your future.

And if your company doesn’t offer 401(k)s, then you may not start saving soon enough — or at all — because there isn’t an easy way to start the process. That being said, IRAs (Individual Retirement Accounts) are your new best friend.

4. Thinking you’re covered with Medicare and social security alone.

Only two percent of the population has a significant life event requiring long-term medical care, such as a nursing home or home health aid. The problem: Most people assume Medicare will pay for it. Chatzy says the average individual has less than half of what they’ll need for unreimbursed healthcare expenses in their 401K.

Unlike a mortgage payment, every aspect of healthcare is a big unknown. It’s difficult to predict what type of healthcare you’ll need as you age. Waiting until something significant occurs may make a long-term healthcare plan cost prohibitive, which is why Chatzky recommends starting to search for a plan at age 50 when an adult’s fixed expenses typically decline.

Similarly, most people will be able to collect social security when they retire, but that check is not nearly enough to cover your living expenses — especially now that people are living longer. On average, Social Security will cover 40 percent of your pre-retirement earnings.

5. Giving only to your kids.

Both McNeely and Chatzky agree that you should prioritize your individual monetary needs over those of your kids. That doesn’t mean you can’t spend money on your kid.

Chatzky just encourages parents not to get caught up in things like saving for the entirety of their kid’s college tuition (instead, try to save a third), thus letting saving for retirement fall to the wayside. “The rule is that there is no financial aid for retirement and there is financial aid for college,” says Chatzky.

If you’re in a place where you’re contributing 15 percent of your annual income to various retirement investments, that’s the point when you can consider giving to others.












Photo: Blue Jean Images / Getty Images

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