Many baby boomers approaching the end of their careers are facing some tough times ahead. Whether they just neglected to put enough money aside for their retirement or they never felt as if they had enough knowledge to save properly, some are nearing the point of no return as far as their prospects for financial security during their golden years are concerned. While it's never too late to start accumulating a retirement nest egg, these folks are probably kicking themselves for not doing something about their futures sooner.
Unfortunately, some of these boomers are probably your parents, siblings, or close friends. For better or worse, the decisions they make can have a huge impact on your own financial situation. Increasingly, people in their prime earning years face the prospect of not only having to support themselves and their children but also helping their parents and grandparents make ends meet. Given the difficulties that young and middle-aged adults face in juggling all the financial obligations they have, helping to support their parents may well be the straw that breaks the camel's back. At best, having to provide for some or all of your parents' living expenses can leave you in a much less favorable financial position with respect to your own needs. Even if it makes you uncomfortable, you owe it to yourself to make sure that your parents are being responsible for their own financial affairs.
Helping them, hurting yourself
At first, you may think that helping out your parents won't be that tough. After all, if you're pulling down a good salary, writing a check to mom and dad every month or two probably doesn't seem like that big a deal. Maybe it means that you contribute a little less to your 401(k) or save a little less toward college expenses for your kids, but you can easily tell yourself that you have plenty of time to take care of that further down the road.
Running the numbers, however, paints a much different picture of the consequences of helping out your parents. The impact of diverting some of your savings away from your own financial goals can be greater than you think. For instance, say you decide to give your parents $1,000 each month over the next 20 years. That comes to a total of $240,000. However, in addition to giving up that money, you'll also have missed out on the returns you would have earned if you had invested that money. Assuming that you could earn an average return of about 8% by using a simple large-cap stock ETF like SPDR Trust (AMEX:SPY) or the Vanguard Total Stock Market ETF (AMEX:VTI), your parental support would cause you to miss out on over $350,000 more in investment returns. If you could have gotten a 10% return from your investments, that number rises to over $525,000.
You may well feel a filial obligation to take care of your parents when they need you. Yet just as your parents shouldn't sacrifice their retirement to pay for things for which you can take responsibility, you shouldn't sacrifice your own needs to pay for things they should provide for themselves. In trying to balance your duty to your parents with the other obligations you have to your own family unit, it's important to make sure your parents are doing everything they can to help themselves before it's too late.
Teach by example
It's awkward to bring up financial topics with family members. Many parents prefer to keep quiet about personal finances for a variety of reasons, ranging from embarrassment at realizing that their children are better off financially to fear that children may try to take advantage of them by asking for gifts and other types of financial assistance. Unfortunately, the shame that keeps some parents quiet often prevents them from getting the help they need early enough to make a difference.
One way to break through the silence is to share your own financial experiences with your parents. If you have worked hard to learn more about budgeting, saving, investing, and reducing common expenses, your parents may well benefit from your knowledge. By talking openly about your own financial difficulties, not only will you make it clear that you feel comfortable sharing your personal experiences with your parents, but you'll also make it easier for your parents to pipe in with their own thoughts. In many cases, opening the dialogue leads to a flood of communication and valuable information, and you may well find yourself answering all kinds of questions about financial matters. Once the word gets out, you might even start getting calls from aunts and uncles and other relatives who've heard that you're the financial expert of the family.
Find outside help
Yet there's always the chance that you may be unable to get your parents to follow your advice. In those cases, it may be best for you to remove yourself from the discussion and find your parents some outside sources of objective information. With some families, parents are more willing to listen to unrelated professionals than to other family members. Even if your parents have to pay for professional financial help, it may be worth it if they get good advice that they're willing to follow.
On the other hand, there are some free resources that your parents can look at to get their feet wet planning for their retirement. Local libraries often carry copies of helpful financial planning books from well-known authors. Alternatively, you can suggest that your parents take a look at the Motley Fool's own Rule Your Retirement newsletter. After your parents sign up, they can spend the first 30 days looking at the advice that Foolish retirement expert Robert Brokamp and his fellow writers have for people getting a late start on saving for their golden years. The newsletter is free during the trial period.
Nagging your parents about their financial situation can be challenging, but it's the sort of gift they will appreciate -- once they get over the shock of taking advice from their children. By ensuring that your parents can take care of themselves during retirement, you'll sleep easier for their sake and be able to focus on your own financial needs.
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Fool contributor Dan Caplinger enjoyed helping his parents with their finances, but when it comes to his in-laws, he keeps a respectful distance. He doesn't own shares of either of the ETFs mentioned in this article. The Fool's disclosure policy spans generations.
