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Just the other day while I was at the hospital for a check-up, I couldn’t help but notice a woman with her elderly mother who was arguing with a hospital receptionist regarding medical coverage for her mom. From what I overheard, the woman was in panic mode because her mother was in serious need of medical care and needed a referral to a nursing home. She was also frantic that she would not be able to afford the costs.
Unfortunately, this scenario is becoming a rising problem for many people in the United States. Our parents are retiring, growing older, and will eventually need medical care, which can grow to $10,000 or more per month depending on your parent’s medical condition. But who pays for all of this?
More than likely, it’s going to be you.
The Millennials, Generation X, and the Baby Boomers
Let’s break down the generations for easy reference:
- Millennials: Born 1981-now (Me and perhaps you)
- Average annual income: $40,356
- Average annual spending: $47,113
- Generation X: Born 1965-1980 (Our parents and possibly older siblings)
- Average annual income: $59,699
- Average annual spending: $66,981
- The Baby Boomers: Born 1946-1964 (Our grandparents)
- Average total retirement savings-
- Less than $50,000: $37%
- Between $50,000 and $100,000: 13%
- Between $100,000 and $200,000: 14%
- Between $200,000 and $300,000: 12%
- Between $300,000 and $500,000: 9%
- Over $500,000: 15%
- Average annual spending: $59,646
- Average total retirement savings-
*Note: these facts are sourced from several studies from different years. This information was assembled as close in comparable years as possible and to the best of my ability.
*Note: Both Millennials and Generation X spend more than they earn. This may be due to spending with credit lines, which may not have been disclosed in these studies.
First, how much money do millennials make on average? Fortune states that as of 2015, the annual income for millennials from ages 18-34 is roughly $40,356, almost $20,000 less than Generation X’s average of $59,699, according to SimplyHired. Doesn’t sound like a lot, right?
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A survey conducted by the U.S. Department of Labor has listed that Generation X has more financial obligations to pay for, so their spending is significantly more than millennials. Annually, Gen X spends about $66,981, while millennials spend only $47,113. This may be due to the fact that many millennials still live with their parents, which means that Gen X’ers are probably still supporting millennial children and/or baby boomer parents in their household.
The scary part about it all: the day that Gen X reaches elderly age, it may be up to the millennial generation to take care of more than their Gen X relative’s housing, food, and everyday necessities – in some situations they may have to pay for any of their unpaid loan balances like mortgages or car notes if they are co-signers. Let’s not forget that the government can come after you to pay for their medical bills if they are in immediate need of treatment, which can become pricey when they become elderly.
But what if you can’t afford to pay for it? Filial support law states that you are still obligated to take care of any parents who cannot take care of themselves. And unless you’re in a major financial crisis where nothing can get paid for, the government does not care too much if you can’t afford it – they can (and probably will) liquidate your assets in order to satisfy your parent’s outstanding medical bills.
Time to start saving up for the worst case scenario.
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Learning from the Baby Boomer Retirement Problem
According to the Insured Retirement Institute’s latest report on the Baby Boomer generation, 45% of Baby Boomers have no retirement savings, and a staggering 59% of this generation expected the majority of their retirement income to come from Social Security in 2016. Note that on page 7 of this report, the Social Security expectation has continued to increase since 2014. I theorize this may be due to other income streams no longer satisfying necessities as time has passed.
While our parents and older siblings of Generation X make significantly more income than their parents in the Baby Boomer generation, they are also struggling with the most debt across all generations. According to Experian, the average debt of Generation X is a whopping average of $125,000. Coupled with the trying times of recession in the last 90’s to early 2000’s, lower savings rates, and the huge ordeal of unemployment from the last decade, it has been a stressful life for Generation X, where many of them have not efficiently saved up for retirement due to feeble attempts of paying off accumulated debt.
Another financial hardship: many of Gen X are struggling to take care of their Baby Boomer parents, even with Social Security benefits. It’s also very uncommon that many people have already burned through their elderly parent’s retirement money on medical expenses, not expecting their parents to live this long. We’re all happy that Grandma and Grandpa have more time on earth with us due to medical advances, but who pays for those hefty bills? Running out of money to support their parent’s retirement and medical expenses is a very common situation that affects many people today.
Millennial Millionaire or Broke Baby? The potential of the millennial generation
The millennial generation has been blessed with a new era that yields potential for entrepreneurial success and building incomes that surpass hourly wages and 9-5 salaries, but as it stands now, the average salary of your millennial is still about $20,000 less than Generation X. What does this mean for not only our own futures, but our parent’s? With Gen X’s heavy load of supporting their Baby Boomer parents, paying off their own debt, saving up for their retirement and also supporting their children, it’s no wonder why many Gen X’ers laugh at the idea of retirement.
Thanks to social media, our millennial generation is striving to keep up with the Kardashians and work towards a life full of luxury. But one of the biggest mistakes that the millennial generation is neglecting to save up for their own retirement, let alone their parent’s. Studies show that millennials earn 20% less than the Baby Boomer generation did during the same stage of life, which is alarming, considering that millennials are notorious for designer handbags, lavish vacations and feasts or parties even the Roman gods would envy.
Although I admire the indulgent and carefree lifestyle us millennials pursue, it seems that retirement is not a common thought among us. When splurging on unnecessary items that come with hefty price tags, there lies the unasked question: will this purchase benefit my future? Will this item give me a good return on my investment?
That said, it’s never too late to learn from your mistakes and start preparing for your parents’ future (and your own as well!).
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10 reasons you should start saving up for your parent’s retirement
#1: Filial obligation is the law
It’s more than just showing gratitude and love to your parents for having raised you – elderly care is your legal duty. Thirty states in the US have filial support laws that require adult children to financially support their parents if they are unable to provide for themselves. You can be sued, have your assets liquidated, and even face jail time.
The New York Times has a list of states with filial responsibility laws, along with their citations and statutes. A note for those who live in states without filial law: if medical bills or nursing home bills are left unpaid, these businesses still have a right to pursue the next person responsible for satisfying those bills.
#2: Social Security benefits are oftentimes not enough
Investopedia has listed that monthly Social Security benefits for a person retiring in 2016 at full retirement age is $2,639. Time.com claims, “For someone who racked up maximum taxable earnings each year, and who reaches the FRA of 66 in 2017, the maximum benefit would be $2,687 a month, or $32,244 a year. By contrast, the average monthly benefit is just $1,342 a month.”
When considering necessary expenses like housing, healthcare, food and transportation, that does not seem like enough. Take a look at The Motley Fool‘s 2014 report of the average expenses of Americans ages 65-74: it was a total of $3,036, more than the maximum Social Security monthly benefit of 2016’s $2,639 and 2017’s $2,687.
So, who else will pay for the remaining?
#3: Retirement funds that were calculated ages ago are no longer enough for current standards of living
It’s a no-brainer that today’s standard of living has significantly increased in comparison to the time your parents opened up their 401(k) accounts with their employers during their 20’s and 30’s. What numbers may have sounded promising then are probably minuscule now and can no longer cover the rising costs of living.
This has already been a problem that Gen X faced when their baby boomer parents became dependent on them. We can likely expect the same thing for us.
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#4: Medicare applications take time to be approved
Although Medicare is the next best option to cover medical bills and is commonly used together with Social Security benefits, applying does not always mean you will be approved. And although the process is said to take 90 days, it’s also uncommon to see your application remain pending for months on end due to clerical error, especially during open enrollment periods when everyone is flocking to apply.
Guess what happens when grandma or grandpa has an accident and slips down the stairs? You still have to pay for it, regardless or whether or not your application is still pending review.
#5: Medicare requires you to be practically penniless to qualify
The issue with Medicare is that like many other government-funded welfare programs, financial requirements are extremely strict. You’ll have to prove that you are struggling with even the most basic of necessities. This also means that you’ll more than likely have to burn through savings, investments, and all other assets that you have access to in order to show your need for financial help. You may also have to pay back the government after your parent’s passing, which means any possible inheritances may be used to satisfy this debt.
#6: Assisted living and nursing homes can cost anywhere between $2,500-$8,000 a month
According to senior living referral service A Place For Mom, assisted living communities average out between $2,500-$4,000 a month, while nursing homes range between $4,000-$8,000 a month. Medicare may not always cover assisted living, either.
#7: Nursing homes often do not have permanent residency
Unfortunately, it is a common story to hear that people’s parents are evicted from nursing homes. The reason? Medicare doesn’t always cover permanent residency, and it still falls on you to find a new place for Mom.
Many businesses in the elderly care industry can also bully patients into leaving to make room for other patients. This is a fairly common practice, and many people are victims of it.
#8: We all have full-time jobs
It isn’t easy to put your life on hold to take care of Mom or Dad. Many elderly require 24/7 assistance, which makes this impractical for single people and even couples who work full-time jobs. I have known several friends who had to take care of their elderly grandparents full-time on top of their own schooling or career in efforts to help out. Being a caregiver can be all-consuming, stressful, and can prevent you from enjoying your own life.
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#9: If your parents are independent contractors, they may not have retirement savings
You may be proud of the family’s established business, but businesses that are not flourishing or pulling in hundreds of thousands in annual revenue may only be generating enough for basic necessities, with much of the revenue going towards business expenses. If your parent’s business or even independent contractor based career only makes them enough to get by, more than likely they do not make enough to put away for retirement. This may mean they have not planned for their future and might have to depend on you.
#10: If you’re the only child, they will become your responsibility
Be very wary of your parent’s future if you are the only child, because this means that sooner or later you will become your parent’s legal guardian. Even if you have siblings, it cannot be guaranteed that your siblings may be willing to help. Despite possible family disputes, someone will have to take care of your parents, and the government will go right down your line of siblings to figure out who will be their guardian.
Most of all: because you will be in the same spot as they are
It can be extremely tough on families when their parents grow older and become dependent for help. This can become a very emotionally stressful time in your life that can take the love and respect out of the relationships you share with your parents. However, it’s important to remember that our parents were the ones who raised us and supported us throughout childhood and well-into adulthood without abandon, despite any financial struggle they faced. It’s only the right thing to do to return the gesture, right? And also consider this too: you will one day become elderly like them! Eventually, you will be in the same exact position where you may have to rely on your kids.
So, what do you do now? Fleeing the country may not help, as I’m sure the government will figure out a way to find you (and also, what a cowardice way to run from familial responsibility!). Here are a few of the biggest ways to start preparing for the future:
- Reduce frivolous spending. Think twice about investing in that Prada bag, as it won’t benefit your future. A new blouse here and there may not seemingly affect your ability to make ends meet, but if you’re struggling to pay your bills while eyeballing a pair of designer shoes, you may need to learn to better control your spending habits.
- Start budgeting. It’s never too late to become more money conscious. Figure out how to reduce your bills, eat at restaurants less, and do what you can to save your money.
- Invest your money. Find an investment avenue that allows your money to make more money for you. Whether it’s buying an investment home for rental purposes, learning the foreign exchange market, or opening up an investment account, you need to find a way to start accumulating interest on your money.
- Find a side hustle. You can begin retail arbitrage on Amazon, get rid of your unwanted products on eBay (I made $278 off eBay in less than one hour), or even start a blog (I started earning money from my blog since day one!). There are so many ways to earn extra money on the side! Pinterest has so many side hustle ideas that have turned even stay-at-home moms into millionaires.
- Sit down with your parents and discuss their retirement plans. Talking about money and growing old are two hard topics to discuss, especially since these are both conversations that are heavily avoided in many households. But think of it this way: would you rather dodge an emotionally heavy conversation that will only last a few minutes, or a future of financial struggle that will last for years, possibly decades?
How will you prepare for the day your parents retire? Let’s chat in the comments below! Stay tuned for my next post on preparing for you and your parent’s retirement.
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