Question

"So many people are retiring right now, and my parents feel left out. They're in their early 60s, very healthy, but not the best savers. They're talking about retiring later this year, but I worry they simply do not have enough money.

I'll tell you what I know. They have decent jobs. There's no work or business pressure for them to retire. They have 401k plans, but no other savings. They still have a mortgage on a house they bought 10 years ago. They're old enough for Social Security, but not at what is considered retirement age. What I mean is that they're almost 62. Full retirement age is 67 for them, I thought. 

In their defense, they raised four children. They put us through college, took us on nice vacations, and were always generous with what they had. They were and are great parents.

We kids are all adults now, beginning families of our own. Now that we've experienced adulthood, we understand how much money it takes to live. That's why I'm writing--are my parents thinking about things clearly?

How do we convince our parents to think this through, before they rush into retirement?"

Answer

My first thought is that your parents are grownups, and get to decide how they live their lives. Unfortunately, there seems to be a trend right now of early retirements by Americans who may not be able to afford it. Some are forced to return to some employment when they discover how quickly they're going through what little they saved. Inflation may begin to impact some.

I believe that COVID brought quite a bit of this on. If your parents worked while much of the workforce was off or working from home, they may have wanted to join those at apparent leisure. While I don't know their exact circumstances, it's easy to understand how they might feel. There's article after article about “the great retirement” or “the great resignation.” It's hard not to get caught up in the movement.

One thing you stated gives me pause. You said your parents are not the best savers. That tells me you already have some knowledge of their habits and possible impulsivity. They may feel that “life is short,” and they don't want to spend it working. That's all fine and well while you're bringing in an income. When in retirement, you're left to live on Social Security and what you've saved, and life may not feel so short.

As an adult child, your options are limited. Your parents are most likely of sound mind and in control of their finances, so of course, you can't tell them what to do. The choice to retire is theirs. Also, in many families, discussing money is taboo. Your hesitancy suggests this might the case in yours.   

It is, though, within your purview as part of the family to have a conversation with your parents. Start by recognizing yourself that they've made it to their 60s without your financial advice. Then approach the conversation by asking them how one makes the decision to retire. Make sure you ask in a curious way, not accusatory. Mention that you're trying to plan for your future retirement and wondering how much you need to save each year. Ask them how they did it. Hopefully, that will open the conversation about their financial decisions and assets. Honestly, we can all learn so much from each other and help each other become good savers and planners.  

It's possible they have more than you think. Their 401k plans may be filled with millions for all you know, or they could be wholly inadequate. Likely, they will be somewhere in between. 

If what your parents share gives you cause for concern, you might encourage them to speak with an independent financial advisor before giving any type of retirement notice. While it's easy to get a job right now if they need it, they may not be as good as the jobs they're retiring from. If a recession comes, jobs could dry up quickly, so they may want to prepare for a worst-case scenario.

Making the decision to retire is one of the biggest in life. It's wise to do it thoughtfully, with sound advice. I recommend everyone do so after consulting a good financial planner. Money has emotion tied to it, and our thinking is not always as clear as it should be. Encourage your parents to have that consult even if they seem to be adequately prepared.