Saving for the future

[beatrice_otter]

Okay, I wasn't sure about this but here goes.

I'm 30, just graduated from grad school and have my first professional full-time job (not my first job, but my first in my field full time and with benefits and everything).  My salary isn't high, but it's not low either.  I'd call it solid.  I've kept my lifestyle similar to what it was before, with little inflation; living frugally isn't normally a hardship for me.  This has allowed me to really pay down my debts on both my student loans and my car.  It should only be a year or two before they're both paid off in full (and I always pay off my credit cards as I go, so there isn't much debt there).  I have a 401k that I am funding to the max, and a 403b through my employer that both me and my employer are funding, and between those and social security I am not worried about retirement.  My job is steady and should be reliable throughout my life.

What I'm worried about is my parents.  They own their own business, and it's never been a very lucrative one.  They love it, but it was barely enough to raise a family on, and so they don't have much saved for retirement.  Now my brother and I are out of the house, their expenses are less ... but the economic changes of the last ten years have really taken a bite out of their business.  Their main retirement plan was to sell the business and the building it's in when they retire, but these days their business isn't really worth anything to sell, and the building may or may not be worth much--it's hard to tell what commercial real estate in my home town will be worth at any given time.  It's good they like their work, because I don't know if they'll ever be able to afford to retire.  When they have to retire, they'll probably end up living with me or me with them (depending on where my job is at that time).  I don't mind; I'm single, and we get along very well, and I've spent enough time living at home with them in the last decade to know it will work.  And if they ever end up in a nursing home, if it requires anything more than medicare pays, I'll probably be the one footing the bill.

Also, I may choose to adopt a child sometime in the next five-ten years.  Children are expensive, and so are foreign adoptions.

The problem is money.  How do I save for this?  How do I plan?  My financial wisdom of the last decade has been mostly "keep debt to a minimum."  Well, that's great as long as you're in a low-income situation, but doesn't give me any guidance for what to do now.

Comments

[devilc]

You're on the right track!

Right now, you've got to put 10% of your gross paycheck in savings. When you get your car paid off, start putting that money (on top of the 10%) into savings.

Are your parents in good health? Have they looked into getting some long term care insurance? Do they have life insurance?

Also, the question to think about is not "how much does X cost?' but "how can I afford it?" And then make a plan to save the cash.

[beatrice_otter]

They're both in pretty good health, but being self-employed in America makes buying insurance ... problematic.

Thank you.

[alexseanchai]

+1 devilc, except I don't know about ten percent of your take-home while you've still got debt--unless you've got your emergency fund up to a year's expenses, or six months or three months or a thousand dollars, whatever you think is reasonable at this point but at least a thousand dollars, in which case fund that sucker as much as you can till you hit that point. At least two percent regardless, and beyond that you need math. How much money will you save on interest by paying the debt off as quickly as possible, compared to paying as agreed till the debt's gone? Is that dollar figure a reasonable price tag for boosting your savings by the amount you would otherwise use to pay the debt earlier?

After you're debt-free, yeah, ten percent, fifteen if you want and can, as high as you can go without cutting necessities if you decide you're able and willing to do that. Get a raise? At least three-quarters of it goes to savings. (I do not follow that advice, but my last raise bumped my pay rate up by ten dollars a fortnight, so if I ever get an actual raise I will, but until then ain't no reason to bother.) And count up how much it will cost to XYZ and how long until you expect to X or Y or Z and figure out how much you need to save each month to get there, and if you fall short, adjust something--you could put off adopting by a year or three, for example, in order to make sure you have enough in savings to be comfortable adopting.

[beatrice_otter]

I'll probably be getting regular raises throughout my career; there are pretty decent guidelines published every year. That's a good point; the critical thing isn't lifestyle inflation now (when I'm making the transition from student to professional), but keeping it under control later. Just wondering where the best return on investment is to save it in, once I've got a good emergency fund built up in my current easily-accessible savings/money market accounts.

[alexseanchai]

Yeah, investments, not my expertise. If I ever get that much money I'm looking into socially responsible mutual funds, but that's not out of a desire for high return on investment, you know?

[foxfirefey]

One thing that might be helpful is talking to them and seeing what their expected Social Security will be, how much if you guys can manage to delay it until what year. I mean, yeah, yeah, people are trying to convince everyone we can't keeping doing SS, but it's not running out any time soon and even then it would be a percentage, not gone entirely.

[beatrice_otter]

Social security won't run out until probably after they're dead; while there do have to be changes, the AARP will have to be a lot less powerful for anything substantive to be done, I think.

They've always been in a low-income bracket, so I'm not sure it'll be much no matter how long they work.

[drunkoffthestars]

As awkward as it may be, I would say that step 1 should be talking to them. You obviously know your relationship the best as far as how to approach it, but laying out that you are thinking about this and want to be able to do this for them is a big one, and will give you an idea about the scope of what you are working with. For instance, both of my parents are in their mid 60's with no intention of retiring any time soon, including my father who owns his own business, so unforeseen tragedies aside, they'll both be working for quite some time yet.

Everyone else has said the savings thing. Depending on how much you are getting paid, you should be able to sock away a good amount of money over the next few years, if that is your primary concern.

A thing I've started doing with my retirement, which may be useful for you, is to set semi-arbitrary savings goals. So I want to have X thousand dollars in my savings account by the time I'm 35, 45, etc. I find this helps me stay motivated and on track better than some nebulous ALL THE MONEY SEVERAL DECADES LATER. This might be a useful approach for you given that it sounds like you are working on longer term event horizons.

And lastly, as someone with friends who are facing similar choices, if you anticipate a need for your parents to move in with you, and you are interested in buying a place, think about focusing on places that are big enough, or things that are duplexes or places that have a granny or garage apartment so you have enough space for everyone. Since you get along well and know you can live with them, the separate-but-near thing might be less of an issue. :) But my friend has a slightly fraught relationship with her inlaws, so having a place that is separate for them to potentially stay/live is important to her

good luck!!

[beatrice_otter]

For my retirement saving, it's pretty automatic. I have a 401k that gets automatically deducted from my bank account every month, and a 403b through my employer that is automatically drawn from my paycheck each pay period.

As to housing, if I am able to get a job in the area (which I would dearly love to do), I would just move back home. My parents have a two-story house set into the side of a hill so that both stories have a ground-level entrance; they live mostly on the top floor (master suite, kitchen, living room, dining room) and I'd have the bottom floor (two bedrooms, bathroom, family room). Even if they had to sell the house and move in with me, though, it doesn't matter--we get along great even when in close proximity for long periods of time.

This is all future stuff, though; I doubt they'll retire in the next ten years, and I'll have changed jobs (and hopefully moved back to be on the same coast) by then. (Average time per job in my field is about seven years, then you move on, and I like where I am but don't want to spend my life here, so I'll definitely be looking to move sooner rather than later.) Unless something completely, totally unforseen happens, they wouldn't be joining me where I am now; but if they did, I have enough space for them right now. I mean, they'd have to get rid of a lot of stuff, but they'd probably get the finished basement, which has a bedroom, bathroom, and large den.

[silveraspen]

Chiming in with one thought - you said your parents have a two-story house. Do they own it free and clear (or will they soon)?

People above a certain age who have home equity and need to pay for long term care (i.e. anything not covered by Medicare in certain situations) often have the opportunity to take out what's called a "reverse mortgage," which allows them to draw on that built-up equity month to month. At the end, there's not much left over, which could be an issue if you would be expected to be inheriting the house, buuuuuut at the same time it's a way to draw cash when needed.

Medicare dot gov should have lots more detail on this.

[beatrice_otter]

They've had the house for about ten years now; I don't know how long a term on the mortgage they had, but it was very likely a long-term one. I'll have to ask. Thanks for the tip!