Planning for Retirement

[mamselle]

Establish a scholarship of some kind?

M.

[Volhiker78]

For those of you with offspring, how much and for how long do you intend to support/help them? We figure through college and maybe a bit in grad school, but it is hard to think about how to manage prioritizing them, planning for our own retirement, and being ready for whatever comes with our own aging parents. Right now, MIL could really use some respite care for FIL but it's prohibitively expensive. And I don't yet have a great plan for my own mother.

We have 2 girls, 15 and 11, and this is roughly our plan.  We'll support them through college age for sure.  After that, it will depend on what they are doing and how much they need.  My wife and I don't totally agree on how much we should leave them when we both are gone.  I don't put a high priority on this but my wife does.  We never had to financially support my parents who are now deceased and my MIL is in decent financial shape but we wouldn't hesitate to help her if she should need it.  Both our parents emphasized their own financial independence; saving for our own retirement has always been very high priority for us.

[polly_mer]

Im sure that there are some 50 year olds that would consider being adopted!

My cousin was adopted in his forties.  My uncle couldn't will his share of a family trust to his wife, my aunt, but he could leave his share to an adopted child.  Thus, while the uncle was a stepfather to the cousin since the cousin was a minor child, the legal adoption occurred only as estate planning kicked in and it was clear that my aunt would be in bad financial shape when my uncle dies and the income from that trust goes away.

[taben]

For those of you with offspring, how much and for how long do you intend to support/help them? We figure through college and maybe a bit in grad school, but it is hard to think about how to manage prioritizing them, planning for our own retirement, and being ready for whatever comes with our own aging parents. Right now, MIL could really use some respite care for FIL but it's prohibitively expensive. And I don't yet have a great plan for my own mother.

We have several children. We plan to offer support through college and have laid out for each of the older ones options to finish debt free (our help = state school; or other options with scholarships; or live at home and go to community college to start, transfer to a state university if needed, and end with $ for grad school or life). Upon graduation or 5 years (whether done or not) we help with a roof over their heads if they want to live at home for awhile.
They also can stay on our health insurance until 26 since our younger kids are on it anyway. Some have needed more time/help than others. If they are an adult living at home, we have basic expectations (pay your own bills, remember this is not a frat house, be helpful around the house, contribute financially to the degree you can while also saving for your exit plan). Time will tell. It is not easy, and I find they do not WANT to stay...I think they find it hard to boomerang back after living out of the nest (though one back now seems a little too comfy...he might need a nudge!).

Elderly relatives? We've had elderly relatives live with us, paid some bills for another, now oversee the care of one in a home, and is now on medicaid (and facilitated the endless paperwork for all of that). As with the kids, some have needed more/different than others. Had to go with the flow here too!

[polly_mer]

We're currently being given the hard sell on an insurance product that can be used to pay for end-of-life care with a life insurance benefit if we don't end up using the end-of-life care option.

Clean (or anyone), is purchasing that a good use of money or are we better off investing that same money in something we can use for any expenses we like?

[clean]

How old are you?  Are your parents still alive, and if not, how old were they when they died?  (in other words, how long can you reasonably expect to live?)

What are "end of life care options"? 

Are these expenses that would be covered by health insurance/medicare?  If so, then why duplicate the coverage?

IF this is in fact a life insurance policy with an 'option' that allows the payout to be slightly before death, these are not cheap.  The question then becomes "do you need life insurance"? 

Life insurance is used to replace someone's income (not to leave an inheritance) .  If you have no income, you dont need life insurance in the vast majority of cases.  (If you have a traditional pension that only covers the one person, then maybe you have an 'income' of sorts, but this is rare, and can usually be avoided if you took the benefits initially for the longer of the 2 lives anyway). 

Finally, if you are being given "the hard sell" I have to wonder if this is something that is in YOUR benefit, or a great commission on the side of the agent.  What brought this 'need' to your attention, or the attention of your financial adviser/agent?  Why does he/she think that there is a whole in your financial plan that this product is perfect to fill?

My first pass assumption is that you probably do not need  a policy that covers 'end of life care' anymore than you need a policy that pays off if you get cancer. 

IF this is some sort of nursing home coverage, know that these policies have become very expensive. Not that they are not a good idea, but if you need nursing home insurance, you dont necessarily need nursing home insurance that doubles as a life insurance policy (making it even more expensive, because part of the way that the insurance is workable is that some will die before they go into the nursing home, and the insurance does not pay out for those. If this policy pays out anyway, then it must be even more costly).

[ciao_yall]

We're currently being given the hard sell on an insurance product that can be used to pay for end-of-life care with a life insurance benefit if we don't end up using the end-of-life care option.

Clean (or anyone), is purchasing that a good use of money or are we better off investing that same money in something we can use for any expenses we like?

Yes. Take the premiums and invest them.

Between the returns on investment they promise (stupidly low) and the very limited end-of-life care, they are not worth it.

Companies lost their shirts on these policies and stopped writing them for years because (1) rates of return were grossly overestimated (2) people were living much longer than expected (3) people went to into long-term-care sooner and stayed much longer.

Now the companies are trying again but the new formulas aren't in your favor.

[phattangent]

My work has a 401a, so I cannot change the amount I contribute. However, the university does match a higher percentage than the employee contribution. If I think I'll hit the income limit for Roth IRA contributions, then I'll max out a Traditional IRA with non-deductible contributions, then convert it to a Roth IRA (no limit on IRA conversions—they call this a backdoor Roth). If I'm below the income limit, then I contribute directly to a Roth IRA. My IRAs are investment accounts with a simple three fund portfolio [1].

[1] https://www.bogleheads.org/wiki/Three-fund_portfolio

[polly_mer]

Finally, if you are being given "the hard sell" I have to wonder if this is something that is in YOUR benefit, or a great commission on the side of the agent.  What brought this 'need' to your attention, or the attention of your financial adviser/agent?  Why does he/she think that there is a whole in your financial plan that this product is perfect to fill?

This was part of the standard annual review by our financial planner.  Two years ago, the financial planner pointed out that with my new job in a much more expensive region and me as sole wage earner with a minor still at home, we were underinsured so we bought more life insurance on me.  Last year, she leaned on us to do wills, financial powers of attorney just in case, and medical powers of attorney, just in case.  Her current mission is pointing out the unpleasant reality that many people will need extra home care or nursing home care in their last couple of years so that has to be part of planning for retirement, which does make sense.  The financial planner gets no commission from the insurance policies; instead, she's paid commission from other investments we have with her.  She's written articles in the local newspaper giving some very sad examples of failing to plan ahead by her current elderly clients so I'm sure this is more a reflection of that than something nefarious.

The plans being shown are hybrid insurance policies where one can take some or all of the money before death and use it for a variety of expenses including nursing homes and in-home care.  Any benefit still remaining at death is then paid as life insurance.  Looking at the sticker price per month for the next 20 years (yes, very expensive; only the mortgage is higher), my counterargument was all four parents (my husband's and mine) are still alive and living in their own homes. 

We're in our mid-forties and the last biological grandparent just died. All the grandparents who didn't die in accidents lived to 90 and tended to have a very rapid decline in that last year.  Thus, I'm much less worried about extended time in a nursing home than I am about the situation where I retire too early and then live another 25-30 years to possibly outlive my savings.  My grandmother who just died only avoided that situation because she had her pension and my grandfather's pension.  I have no pension.

Companies lost their shirts on these policies and stopped writing them for years because (1) rates of return were grossly overestimated (2) people were living much longer than expected (3) people went to into long-term-care sooner and stayed much longer.

Now the companies are trying again but the new formulas aren't in your favor.

These points accord with my thoughts upon reading the tables and the explanation of how the premiums are allocated, so I'm glad to have it confirmed.

[Volhiker78]

The plans being shown are hybrid insurance policies where one can take some or all of the money before death and use it for a variety of expenses including nursing homes and in-home care.  Any benefit still remaining at death is then paid as life insurance.  Looking at the sticker price per month for the next 20 years (yes, very expensive; only the mortgage is higher), my counterargument was all four parents (my husband's and mine) are still alive and living in their own homes. 

We're in our mid-forties and the last biological grandparent just died. All the grandparents who didn't die in accidents lived to 90 and tended to have a very rapid decline in that last year.  Thus, I'm much less worried about extended time in a nursing home than I am about the situation where I retire too early and then live another 25-30 years to possibly outlive my savings.  My grandmother who just died only avoided that situation because she had her pension and my grandfather's pension.  I have no pension.

Polly_mer:  Based on the above,  and what what I know about you via your posting history,  I seriously doubt that you need this hybrid insurance policies.  My 2 parents died at ages 90 and 92 and neither needed insurance like you described.  Like your grandparents, their decline was very rapid in the end (6 months for my mom - 4 months she was in assisted living and 2 months for my dad - hospice at his home).   I think you are on the right track without these insurance polices. 

[spork]

We're currently being given the hard sell on an insurance product that can be used to pay for end-of-life care with a life insurance benefit if we don't end up using the end-of-life care option.

Clean (or anyone), is purchasing that a good use of money or are we better off investing that same money in something we can use for any expenses we like?

What is the commission earned by your financial planner if you buy one of these insurance policies?

[pigou]

For those of you with offspring, how much and for how long do you intend to support/help them? We figure through college and maybe a bit in grad school, but it is hard to think about how to manage prioritizing them, planning for our own retirement, and being ready for whatever comes with our own aging parents. Right now, MIL could really use some respite care for FIL but it's prohibitively expensive. And I don't yet have a great plan for my own mother.

We have 2 girls, 15 and 11, and this is roughly our plan.  We'll support them through college age for sure.  After that, it will depend on what they are doing and how much they need.  My wife and I don't totally agree on how much we should leave them when we both are gone.  I don't put a high priority on this but my wife does.  We never had to financially support my parents who are now deceased and my MIL is in decent financial shape but we wouldn't hesitate to help her if she should need it.  Both our parents emphasized their own financial independence; saving for our own retirement has always been very high priority for us.

I don't have any kids (yet!), but my parents subsidized my income beyond grad school... and I plan to do the same. When you're a student, an extra $10k/year makes a huge difference to your quality of life: it's microwave food vs. restaurants. Or living in a rat infested building with a roommate vs. having your own, livable place. If they inherit money when they're 60, it's unlikely to have any impact on their standard of living -- and so effectively distributing the (expected) inheritance early on makes much more sense.

I don't believe in making anyone show they can "make it" on their own. That's not what anyone who has parents with disposable income does anyway: they have a massive insurance policy that'll effectively bail them out whenever they hit a hardship. If anything, they're likely to learn the wrong lessons (if I could live on this, so can poor people!). But more importantly, they'd miss out on memorable experiences, like traveling with their friends, for no good reason. And some of those are much harder to come by when you're not in school anymore. Similarly, working minimum wage jobs is just not a good use of their time (economically speaking): they're better off doing an unpaid internship or investing in social capital.

In grad school, I had friends who took positions they really didn't want, because the available postdocs didn't pay enough. They had parents who could easily have subsidized the difference... and while it's hard to project what would have happened, there's a good chance their career trajectory would have been very different and they'd likely have a higher income now (and, perhaps, also be happier). That just seems insane to me...

Which brings me to my favorite John Adams quote:

I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain.

Translates pretty easily into "I build savings so that my kids can make choices with fewer economic constraints."

[ciao_yall]

I don't have any kids (yet!), but my parents subsidized my income beyond grad school... and I plan to do the same. When you're a student, an extra $10k/year makes a huge difference to your quality of life: it's microwave food vs. restaurants. Or living in a rat infested building with a roommate vs. having your own, livable place.

Maybe, though I took a lot of pride in supporting myself on my own salary. Yes, I lived modestly and made some financial mistakes but they were always my own.

If they inherit money when they're 60, it's unlikely to have any impact on their standard of living -- and so effectively distributing the (expected) inheritance early on makes much more sense.

I did inherit some money and while it went straight into the retirement account, I see it as a responsibility as much as a blessing. It did make some moves more flexible and reminds me that I need to help others.

[Volhiker78]

Inheritance is an interesting topic in itself.  If I die before my spouse  (most likely),  all of our savings will go to her.   In the unlikely event that she dies first, then the savings go to me and I will rewrite my will.  The majority of the estate will likely go to other causes.  My daughters would be well taken care of but I feel like the majority should be left to causes I think would benefit others.  So,  I disagree with John Adams' quote.   

[downer]

I don't have kids, and ideally I'd like to die broke or close to it. I wouldn't mind dying in the red. But I've got a fair amount invested and so long as the economy does not completely crash, I will be fine. Indeed, if I am to die broke, I will probably need to spend more money than I am now.

There is of course the worry about what care needs I will have in my old age, and what my medical costs will be. Any estimates I see of those for the next 30 years are pretty scary.

Anyone else planning for their total worth to go to zero by the time they die?