Your parents are aging and have zero money. You can help, but make sure they don’t take you down with them.
Retirement planning can be a scary subject, with good reason: More than a fourth of non-retired people have absolutely nothing saved for retirement, and even many folks who have some retirement savings don’t have nearly enough. For some folks that means tightening their belts and figuring out how to survive on Social Security. But for a lot of aging parents, having nothing saved for retirement means they’re relying on their adult children to be their retirement plan.
About one-third of middle-aged adults are already supporting their parents financially, and most expect that to continue indefinitely. While most people love their parents and probably don’t want them to slide into poverty and sadness, there’s one obvious problem with serving as your parents’ retirement plan: You might go broke doing it. If you know that your parents will be looking to you for support when they can’t work anymore, there are steps you can take to protect yourself.
First, you need to know what you’re dealing with, and that means digging into your parents’ financial situation and overall net worth. Consider all of these possible sources of income and potential financial needs.
Do a Social Security audit. If your parents worked, they’re likely entitled to Social Security benefits. If they haven’t already, have them create Social Security accounts and check into their benefit situation. Keep in mind that the longer they can wait to take their Social Security benefit, the larger the payouts. Social Security won’t be an enormous amount of money, but depending on your parents’ work history, it can be a significant amount that will definitely help defray the costs of supporting them.
Track down their retirement savings. Even if your parents have long assumed you’ll be their retirement plan, they may have accrued some retirement savings automatically through their jobs. They may have even forgotten about small 401(k) plans they left behind at old jobs. Do a deep dive to uncover every single retirement account they have or once had, and make sure you know how to access them and what the balances are.
Plan what to do with their property. If your parents own a home, find out what the situation is there. Do they still owe on a mortgage? Are there any open home equity lines of credit or loans? What’s the home's value? Selling can unlock a lot of cash that could be used to support your parents (while eliminating the associated costs of home ownership), while a reverse mortgage might be a way to let your parents age in place with an enhanced income.
Make a budget. Once you know how much money your parents actually have, you can make a budget for them that will stretch that money as far as possible. Getting them used to living on a budget now will pay dividends later if you have to take a more active role in the day-to-day management of their lives. It’s important that this budgeting process includes how much you can reasonably contribute without harming your own finances—or your own future retirement. Knowing what your “number” is in the context of supporting your parents will be essential in every decision made, so you'll have to plan out your own budget as well, with your parents as a factor.
Now that you have an idea of how much your parents (and you) can contribute to their own upkeep when they retire, you can start to think about how to lower those costs. A few scenarios to consider:
Move them in with you. If selling their home is part of funding their retirement, or they don’t own a property, one of the easiest ways to lower their retirement costs is to have your parents live with you. There are obviously a lot of emotional and psychological factors at play here, but from a financial standpoint, it makes a lot of sense. Instead of trying to pay their living expenses on top of your own, a lot of those expenses would be shared—and you’ll also have control over those expenditures.
This can especially make sense if you have space in your own home and your parents don’t need the support of an assisted-living facility or other resources (such as a nurse). But it’s important to formalize how they’re going to contribute to the household budget, whether that means paying rent or covering specific bills.
Give them tax-free "gifts." You can give a certain amount of money to your parents every year without any tax concerns. The current limit is $18,000, so you can give that amount to your parents to help support them without having to file any tax paperwork. That can help cover their bills without any extra penalties for your income or assets.
Create a money pool with your siblings. If you have siblings, you may each have a different capacity to help out. Instead of richer siblings paying for everything and lower-income siblings paying nothing, create a “pool” of money that everyone pays into according to their situation, and pay our parents’ bills out of that. It’s important to consider not just a siblings’ income, but also their direct costs—if your parents are living with you, for example, you might be paying more to cover higher utility bills and other costs, and thus you might contribute less to the pool to reflect that.
One of the most crucial things you can do to protect your own retirement once it becomes clear that your parents will need your assistance in theirs is to identify public programs that your parents can use to supplement their retirement. There’s often a stigma surrounding utilizing these sorts of government- and community-run programs, but this is why they exist in the first place—so take advantage.
There are the obvious programs like Medicaid and Medicare, or food assistance through the SNAP program, but there are more other options than you might think, so do your research. A good place to start is this site, maintained by the National Council on Aging, which lets you search in your area for specific support programs, including health care, transportation needs, or simple senior discounts that might be available. There are often a lot of valuable benefits out there that can save your parents—and thus, you—a lot of money.
Outside your local area, there are several programs run by the federal government that can help too:
U.S. Department of Housing and Urban Development (HUD). If you can’t afford to have your parents move in with you, and they can’t afford where they’re currently living, HUD offers programs to help senior citizens find affordable housing.
Utility assistance. Heating and cooling can be a significant expense, and attempting to keep costs down by not heating or cooling the home can be dangerous. Many local utilities have low-cost programs in place for seniors in need, so it’s worth a call to investigate this. There’s also the Low Income Home Energy Assistance Program (LIHEAP), which can provide assistance.
Tax credits. If your parents have a very small income (currently between $12,500 and $25,000, depending on their filing status), they may be eligible for a federal tax credit, which can be as much as $7,500.
Supplemental Security Income (SSI). If your parents are 65 or older and earn less than $1,971 per month, they may be eligible for SSI benefits. This won’t be a huge amount of money (it depends on actual income and other factors, but tops out at about $914 per month for individuals and $1,371 for couples), but it can help defray costs.
Additionally, many areas offer free transportation for seniors (sometimes specifically to and from medical appointments, but some municipalities also run free bus services around town) which might allow you to cut the expense of a vehicle from your parents’ budget.
Being your parents’ retirement plan is a lot of responsibility—and a lot of stress. But if you plan ahead and look into all the resources available, you can at least avoid going broke yourself in the process.
