Help for my parents

[Miss_Lala]

I've just learned that my parents, 59 and 53 are thinking about retiring early. Good for them, I thought, until I heard the numbers. My mother has $118k in a target date 401(k) with 45% in bonds. All I know about my father's 401(k) is that the amount is less than that of my mother's. They are currently maxing out both retirement plans and my mother will get a pension of about $175,000 (buyout). I believe that they make around 100k a year, but are still paying off a mortgage. They think that they can retire in 3 years.

I know that I don't have all of the information, but I do know that they're counting on an inheritance (they don't know any amounts) from my thriving and extremely active grandfather who seems to have a good deal of time left in him.

I don't think they could retire comfortably, the way they want to. How do I help them realize this?

 

[FinanceDude]

I've just learned that my parents, 59 and 53 are thinking about retiring early. Good for them, I thought, until I heard the numbers. My mother has $128k in a target date 401(k) with 45% in bonds. All I know about my father's 401(k) is that the amount is less than that of my mother's. They are currently maxing out both retirement plans and my mother will get a pension of about $175,000 (buyout). I believe that they make around 100k a year, but are still paying off a mortgage. They think that they can retire in 3 years.

I know that I don't have all of the information, but I do know that they're counting on an inheritance (they don't know any amounts) from my thriving and extremely active grandfather who seems to have a good deal of time left in him.

I don't think they could retire comfortably, the way they want to. How do I help them realize this?

Big question is what are their monthly expenses? That house payment will continue in retirement, are they budgeting that in?

Sounds "possible", but not "probable", unless they are willing to buckle down and save mucho dinero for the enxt 3 years........

If they have around $400K, they can take out $16,000 a year.......plus they get SS at 62, which is probably what your dad is figuring on.......

 

[MasterBlaster]

The ongoing battle... How to save people from themselves.

All you can really do is point out that their plan is undercapitalized. Tell em' about safe withdrawal rates. And tell em that their plans ultimately means living in poverty.

FinanceDude:

Even with SS at 62 of at most $18k (and most likely quite a bit less) their spending will be pretty thin pickles. Take out taxes, mortgage, and medical expenses and there just isn't much there, even for frugal people. This is a train wreck in slow motion.

 

[GatorBuzz]

Run their figures on FireCalc and hand it to them. Proof is in the pudding. I'm not trying to be abrasive, but maybe they know something you don't?

 

[Miss_Lala]

Run their figures on FireCalc and hand it to them. Proof is in the pudding. I'm not trying to be abrasive, but maybe they know something you don't?

I understand your thinking that I don't know their whole situation, which is true. What is scary is that I know that they don't either. My mother was asking me whether I thought they could retire and the information I posted here is all she knew. And I need to do an edit...her 401k is at 118k, not 128. The amount of her pension is if she continues to work until she's 65, which she told me flat out that she won't do.

I told her about 4% being the desired SWR, but from the combined 401ks, that comes to $8,000 or so a year. They're not counting much on ss, and they don't know when the pension will kick in.

 

[FinanceDude]

I understand your thinking that I don't know their whole situation, which is true. What is scary is that I know that they don't either. My mother was asking me whether I thought they could retire and the information I posted here is all she knew. And I need to do an edit...her 401k is at 118k, not 128. The amount of her pension is if she continues to work until she's 65, which she told me flat out that she won't do.

I told her about 4% being the desired SWR, but from the combined 401ks, that comes to $8,000 or so a year. They're not counting much on ss, and they don't know when the pension will kick in.

They need to dramatically change their lifestyle, or delay retiring,or a combination. Other than that, it will not work.........

 

[igsoy]

If they are currently maxing their 401ks, that means they are putting in 20,500 each or 41,000 total, doing this for three more years adds another 126,000 to their accounts. Figure a 7% yearly gain, bringing their total 401k to about 400,000 at retirement date.

If they are really doing this much savings, then currently they only have left about 40-45,000/yr to live on(after FICA and fed/state). Can they create that much income in retirement?

Given their present 100,000 income,whether divided 70/30 or 60/40 or 50/50, their combined Social Security @62 should be 24,000 per yr.

With their 400,000 401k, plus let's say 100,000 pension lump sum (I'm assuming it will be decreased due to 9 yrs early retirement), they can safely take 20,000 out each year.

There is the issue of health costs until Medicare kicks in. Those costs will go up, but getting rid of their work expenses (commuting, clothing, eating out) will partially counteract that.

So they seem like they will be okay after they both reach 62, the problem is getting through the six years before the younger of them can collect SS. If they can find a way to bridge that then once the mortgage is paid off, they should be doing fine.

Re: eventually inheriting from a currently spry 80 yr old man. The only thing more guaranteed than taxes is ______.

 

[armor99]

Interesting... this actually sounds a lot like conversations I have had with my folks over time. They are of the generation that does not believe in discussing their finances with their children. Because of that I really do not know their situation exactly. But I did ask them a few questions recently that leads me to believe that their retirement is in serious jeopardy. I mentioned to my father that to retire comfortably he should have around 1 mil. by now... Just to see what the reaction would be. He said he had no where even close to that much. I asked if he was using the catch up contribution to his 401k... had never heard of it... and said he did not have the money anyway. I found out in the past he withdrew on his 401k for a car loan.
I mentioned to him a few things that he might want to do to try to help himself as he gets closer to retirement (he claims <4 years). (downsize the house, cut back expenses, etc.) And of course he wants to do none of those things. So I bought him a decent retirement book, and hope he actually reads it. Sometimes your folks get into the mode that if the info comes from you (a son or daughter), it must be wrong. Maybe an impartial book will help to educate him. The funiest thing of all is... I know I will be financially secure for my whole life... or at least to the best of my ability.. it just seems to be part of my makeup. I am not counting on any inheritance, and honesty do not want a dime. I would just like them to be able to take care of themselves for as long as possible. Sometimes I think knowing the trainwreck is comming... and knowing there is nothing you can do to stop it, is one of the hardest things in life to face....

 

[packrat44]

Your parents are betting their retirement on the possibility of receiving an inheritance? Some people believe in Santa Claus and the Tooth Fairy, but those people are usually young children, not mature adults.

 

[Retire Soon]

Miss_Lala, you mentioned that your parents want to retire in 3 years, and are still paying off their mortgage. It is very important for you to find out what the balance is to pay off their home, and how many years it will take to pay it off. Also, what is the total on their monthly bills? I don't think anyone can help you until you can provide these figures. Additionally, at their age, they may have health issues that could make insurance too expensive to purchase.

 

[ladelfina]

Well, packrat44.. it depends.

I'm counting, in a sense, that my mom will have something left over.. don't know how much, but it will be something with 5 zeroes. My deceased dad set up an (A/B?) trust from which my mom takes some? all? proceeds while her own personal egg grows. I KNOW this is pretty much the exact opposite of how it is supposed to work. I mentioned it to her once or twice, but it is not my dough so I can't bitch. She is dedicated to scrimping "for the kids.." so she can "leave us something.." but hasn't entirely grasped or processed the tax shelter/accumulation power of the trust, nor does she keep track of what the bank trustee is doing with it in particular (!!). There is an odd mental block here, unbecoming of her --As long as it kicks off living expenses and enough for a new Cadillac every three years she is currently content-- She's a bit better with "her" investments which are mostly muni bonds and T-biils, with a minor percentage of "mad money" entrusted to a "very nice young man" with a managed-account scheme, who has ported her from this brokerage to that as his career has progressed. She keeps wanting me to meet him for coffee.

It IS creepy to position yourself in the expectation of an inheritance.. but it depends on how large it may be and what the possibility of actual realization is. Getting a bead on where Gramps is really at could either mollify or amplify your fears.

 

[chinaco]

Counsel them to at least pay off the mortgage first! Depending on how much they owe, that will keep them working for a little longer. 400k with a mortgage seems a bit thin! If dad can hang on till 62, pay the house off, and get SS, they will be better off. They also need to consider the cost of health insurance.

Your best bet is to get them to do the math. Calculate their expenses. Add on Health care costs and include periodic expenses (like care purchase, house repair).

You could be correct on the inheritance. Unless grandpa has a lot of money... that is very risky. The last couple of years of life can be extremely expensive. If he winds up in a nursing home, the cost could be up to $80 - $100k/yr.

 

[chris2008]

The chance for any inheritance may disappear quickly if the active grandfather of Miss Lala learns about the early retirement plans ---- especially if he himself did not retire early on an inheritance but worked for each $ that he accumulated...
Never calculate with an inheritance until it is booked on your own accout, taxes paid.