{ "media_type": "text", "post_content": "Help! Just learned that my parents (54 and 56) only have ~100k in their retirement account. Their house is currently worth ~800k with ~450k left to pay on the mortgage. Their income is ~200k combined. They insist that they’ll have enough to retire on with social security and after selling the house. However, I have a hard time believing this since the max monthly social security payout is ~3k per person which doesn’t even get close to the 70-80% replacement ratio. How screwed are they really?", "post_id": "5ff11644890c20001e3e9278", "reply_count": 28, "vote_count": 7, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

Help! Just learned that my parents (54 and 56) only have ~100k in their retirement account. Their house is currently worth ~800k with ~450k left to pay on the mortgage. Their income is ~200k combined. They insist that they’ll have enough to retire on with social security and after selling the house. However, I have a hard time believing this since the max monthly social security payout is ~3k per person which doesn’t even get close to the 70-80% replacement ratio. How screwed are they really?

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Not screwed but need to work more years and make some hard moves. I’m not an FA but in this situation I would do the following: 1. Sell the house and move to a smaller house or condo using the leftover equity of $300k-ish. Cash buyout. No loans. 2. Max out 401ks and IRAs going forward - that’s $51k combined each year. 3. Cash out any life insurance they may have purchased years ago. 4. Mentally prepare and plan to work 10 more years until 65-ish. 5. Stash away more money on net income - as much as possible. There will be savings from no mortgage. I hope they have no other debts? By doing this for 10 years, they should conservatively have $600k more saved. So many factors have to work out for this to happen — hopefully they can keep their incomes steady. All the best!

likehelpfulsmart

If your truly don’t think they are prepared, Maybe you should help pay for your own loans and they shouldn’t help your other sibling.

likesmart

Why are they paying your loan for you?

likesmart

I’ve learned over the years that people will politely (or aggressively) decline offers to pay but when the money is in hand, they will always keep or cash it. Pay those loans or get ready for mom and dad to move in with you come retirement lol

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If you and your sibling in the position to, pay off your portion of the school loans and have them invest that money in an index fund.

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If you’re worried about their retirement, then you truly need to take responsibility for the parent loan, that’s on you. You’re taking money out of their pocket they could be investing. If they refuse, then take what you would be paying and invest in a brokerage account for them.

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Partner 1 shared good and proper advice, but I hope you and your siblings plan on supporting (financially) and helping them on their journey to retirement.

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I cannot believe I am going to say this line but show them the numbers dont tell them. Give them something to react to. Show them the outcomes with different scenarios - yours, theirs, hybrids. There has to be a middle ground here

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My question is that why do you feel they will need 70% - 80% of 200k income in retirement? Social security may not be 3k each. They should create an account on the ss and see what the realistic amount is. Do they need an 800k house? Why not sell it now and buy a smaller more affordable house now and pay from the equity and not have a mortgage starting now and invest that money. Perhaps you and your siblings should take over college loans! Your concerns are understandable but this is a common mistake people make thinking they need that high a percentage of current income in retirement.

D2, you bring up some good points. The 70-80% number is what I’ve most often seen used as the average income replacement target - but it’s possible that they need even less if their expenses go down drastically. I’ll definitely talk to them to get a better understating of what they think expenses will look like. The 3k came from my parents inputting their numbers into the ss calculator, so hopefully that is pretty accurate. My parents do intend to sell the house but not right now since they think it’ll go up in value - I agree that it’s better to just sell now so they can get investment returns, but haven’t been able to convince them yet. I’ve also taken over the loans that are in my name and will start saving now for the portion of loans under my parents’ name that they haven’t let me pay for.

Partner 1 has the best advice in one post so far. More things for consideration: -do your parents plan on receiving inheritance from your possibly living grandparents or other relatives? -is either parent planning on receiving a pension? -is either parent in a role where people can or do often work past 65? For example: college professor. -have you engaged your siblings on this effort? Parents could consider the youngest sibling most responsible (depending on culture), or maybe a daughter, or something else. Thinking of the situation as a joint burden would be helpful and you can give your parents consistent messaging. -Finally, set parental expectations of working longer. Earning another 600k (or more) by working 3 more years will be better than saving a few k more per year now. Plus, social security will pay more per month to people who start taking it when they're older.

Thanks M3! Both of them do plan to work till 70 since they’re in white collar jobs that are aren’t physically demanding. My siblings are 18 and 20, so it’s a bit hard since they are younger and don’t know much about personal finance. Unfortunately they are getting the same messaging I got when I was 18 about college being completely covered for them (see my response to C1 above for more info on the point about college). So it’s a bit of separate/additional issue with my siblings to get them to understand that they’ll actually be responsible for college costs because my parents have told them they don’t have to worry about anything. My middle sibling has also chosen a pretty low-paying field, so unlikely that we can share the burden when the time comes.

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