While I was in my 30s and 40s, retirement planning meant planning travel to exotic places! Oh sure, I'd need money for food and other basics, but mostly I was saving money so that I could do LOTS of traveling. But now that I'm in my 50s I realize that retirement planning is a little more complex.
As well as considering my future travel budget, I am now thinking more seriously about possible family financial obligations that may exist even when I'm retired. And, this is affecting my retirement planning.
People feel differently about family, and especially financial obligations. When planning for your retirement, talking about your feelings with your spouse is an excellent idea. You need to know how each other feel about possible obligations as you plan for your retirement. Lately I have been hearing from many people in retirement who are concerned that their retirement savings may not last due to their decisions to help their children (and grandchildren) financially.
What type of questions should you ask yourself? A study by The MetLife Mature Market Institute's survey, "Multi-Generational Views on Family Financial Obligations," provides insights into the challenging issues people face as they near or enter retirement.
According the MetLife survey results, 48% of respondents feel a strong responsibility and another 28% a moderate responsibility to provide financial support for their children's higher education. Only 23% felt a slight or no responsibility. Have you thought about how much help you will provide for your children's education? Often this obligation comes due at the time people would traditionally increase their retirement savings. However, with today's cost of college education, people may feel pulled between these two financial goals.
Do you feel responsible to help your children financially if they experience a financial setback through no fault of their own? Most survey respondents do. Only 23% felt slight or no responsibility. However, people felt differently about this obligation if children were in debt due to overspending. Then, 71% of respondents did not feel obligated.
I feel more challenged by the following question: do I feel financially responsible to contribute to my children's down payment on a house? In the survey, only 24% of respondents felt strongly or moderately responsible, and 76% felt either slight or no responsibility.
Once your children are financially launched, can you then concentrate on your retirement desires? Maybe yes or maybe no. Clearly there's no absolute answers to any of these questions, but here are more questions to ponder.
Will you feel an obligation to provide financial support to your parents or in-laws in their later years if they have financial difficulty? 77% of respondents said they felt a moderate to strong responsibility to help.
Do you have an obligation to your family even after you die? In other words, do you plan to enjoy your retirement or leave an inheritance to your children? For most of the questions, the responses of Baby Boomers (born between 1946 and 1964) versus Generation X (1965-1976) or Generation Y (1977-1990) were very similar. However, 70% of Baby Boomers felt that enjoying retirement was a higher priority than leaving an inheritance to their children. In contrast, only 67% of Gen X and 57% of Gen Y felt enjoying retirement was a higher priority. I wonder, how will Gen X and Y feel about this when they are closer to retiring?
While we may not know exactly how we will respond to these types of situations unless they arise in our families, it can be helpful to think about our family financial obligations, and to make these a part of our retirement plan. But don't forget to plan for those exotic places too!