Most of the headlines regarding family members helping each other financially deal with parents supporting adult children. However, in many cases, the reverse is true.
If your parents are not on track financially and are headed for retirement or already retired, what should you do? That’s what a listener of the Clark Howard Podcast recently asked.
Should I Help My Parents Save for Retirement?
My parents aren’t financially prepared for retirement. Should I help them? And if so, how much?
That’s what a listener asked on the May 5 podcast episode.
Asked Farahn in Texas: “My parents aren’t very good with money and they currently don’t have any retirement saved. My dad is 53 and my mom is 63. They have a lot of health problems as well.
So my question is, should I include them in my financial plans? Should I plan to save a retirement for them? Should I try to help them make better financial decisions?”
Clark just got a call from a family friend trying to figure out what to do with a financially destitute parent with medical problems, he says. If you are willing and able to help, and if you trust your parents with the money, consider Clark’s long-time favorite, the Roth IRA.
“Lots of adult children are finding as their parents age that the parents have the dual problem you described. No money saved for the future. And medical problems,” Clark says.
“For your parents, it’s really late in the game for them to build up savings. If you are willing to take on the burden of helping with saving for retirement, and if they would not squander the money, you’re able to put up to $7,500 [a year] in a Roth IRA in each of their names.
“That’s a transfer of generational wealth in reverse.”
How Much Should You Give Toward Your Parents’ Retirement?
Let’s say that you’re willing and able to help your parents. And you agree with Clark that a Roth IRA is the best way to go.
You need to determine the amount of money you’re willing to give them on an annual basis … and for how long you’re willing to give it.
Just make sure you aren’t stretching too far and messing up your own finances.
“If you don’t have millions of dollars, you can give them whatever amount you want,” Clark says. “But the smartest, most efficient thing to do if they would leave the money alone and let it grow is the $7,500 each year in a Roth IRA for them, preparing for when they are not able to earn and not able to take care of themselves.
“They at least have that money growing tax-free for the years until that occurs.”
Helping out family with finances is an admirable endeavor. It’s expected in some cultures. In others, it’s more of a bonus.
If you decide to do so, make sure that it isn’t hampering your own financial picture. And consider investing in a Roth IRA for each of your parents.