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Family Needs Curtail Retirement Prospects 
Most people age 50+ have not prepared for family challenges that could affect their retirement 

11/18/2013  By Stephen Miller, CEBS 

Three out of five Americans age 50 and older have provided financial assistance to family members—including parents, adult children, grandchildren, siblings and other relatives—during the past five years, according to a new study. That generous spirit is laudable, but Baby Boomers also need to keep in mind their own need to save for retirement.

The findings reported in Family & Retirement: The Elephant in the Room are based on an August 2013 survey of more than 5,400 respondents age 25 and older by Merrill Lynch in partnership with consultancy Age Wave.

During the past five years respondents laid out nearly $15,000, on average, to assist family members—a figure that was significantly higher among the nation’s wealthiest families. This financial aid, which may have been given over many years or to help relatives meet a one-time need, was often provided without an expectation of receiving anything in return.

However, the vast majority of people age 50 and older (88 percent) have not factored financial support for family into their retirement planning.

“Given the challenging economic climate during the past several years, it is not surprising that so many Americans have extended financial support to their loved ones,” said Andy Sieg, head of global wealth and retirement solutions for Bank of America Merrill Lynch, during a November 2013 teleconference announcing the study's results. “However, such admirable willingness to assist family members should not place one’s own long-term financial security in jeopardy, and such hidden risks to retirement must be considered and planned for.”

Additional highlights from the study include:

    • Are you the family bank? Nearly three in five people (56 percent) ages 50 and older believe that a family member is the “family bank,” meaning someone whom relatives are most likely to turn to for financial help. This person is often the most financially responsible, has the most money or is the easiest to approach.

    • Sacrificing retirement for family. Half of preretirees ages 50 and older say they would make major sacrifices that could affect their retirement savings in order to help family members. Among this group, 60 percent would retire later, 40 percent would return to work after retiring, and 36 percent would accept a less comfortable retirement lifestyle.

      This generosity extends to a shift in thinking about inheritance, with 60 percent of respondents ages 50 and older saying they would prefer to begin distributing their assets during retirement, rather than waiting until the end of life. More women than men in this age group are likely to feel this way (65 percent vs. 53 percent).

The study found that the vast majority of people ages 50 and older have not prepared for potential family events and challenges that could affect their retirement, including the following:

    • Perpetual parenthood and "boomerangs." One in five parents has at least one “boomerang” adult child who has moved back home. More than two-thirds of parents have provided some form of financial support to their adult children during the past five years.

    • Loss of a spouse through death or divorce. Only one-third of respondents believe they are well prepared for retirement if everything goes as they expect. Less than one-quarter would feel prepared if their spouse died—a troubling statistic given that more than half of women over 70 have been widowed, according to the U.S. Census Bureau.

    • Early retirement. Fewer than one in four say they would be prepared financially if they or their spouse were forced to retire early because of a health problem, even though one-third of Americans who retire early do so for health reasons.

      Younger people consider cancer to be the greatest health-related worry of later life, while older adults unequivocally say Alzheimer’s; nearly half of those ages 85 and older have Alzheimer’s or related dementias, according to the Department of Health and Human Services (HHS).

    • Caregiving and receiving. The vast majority of respondents (91 percent) say they would not be prepared if an aging parent or other relative needed extended long-term care. While 37 percent believe they may need long-term care in their lifetime, the reality is that twice as many—70 percent—eventually will, according to the HHS.

      Most people (86 percent) would prefer to receive care in their own home. Essentially, nearly no one would opt to receive care in a family member’s home or in a nursing home (both choices are preferred by just 2 percent).

    • No. 1 retirement concern: becoming a burden. When asked their greatest worry about living a long life, older adults (ages 68 to 88) put “being a burden on family” on par with running out of money to live comfortably (both at 31 percent). However, 66 percent of people age 50-plus admit they have taken no steps to avoid having to live with a family member if unable to live on their own.

Troubling Lack of Discussion

The study also found a significant lack of proactive discussion and engagement among family members on key financial topics. Seventy percent of adult children ages 25 and older have not talked with their parents about retirement and other aging-related issues. And 56 percent of parents ages 50 and older have not discussed any important financial matters—such as a will, health directive, inheritance plans and where they will live in retirement—with their adult children.

Across all relationships, the most common catalyst for such discussions is the death or illness of a family member or friend (43 percent), and the top barriers for having an open conversation include fear of family conflict (24 percent) and the fact that such topics are just too uncomfortable to discuss (19 percent). People who do talk about financial issues with family members are, on average, nearly twice as likely to say they would be well prepared financially if faced with a family challenge.

“Proactive discussions and coordination with family members can be the difference between smooth sailing and significant hardship when confronting financial challenges leading up to and through retirement,” said David Tyrie, head of retirement and personal wealth solutions for Bank of America Merrill Lynch. “Although many of these topics can be difficult to discuss, there is a clear benefit to having family conversations and planning ahead.” 

401(k) Participants Expect to Slow Retirement Savings

Employees who save for retirement through their employers’ 401(k) plans are not planning to sock away more for retirement over the next year as compared to last. Disturbingly, those closest to retirement are actually decreasing their planned savings for the future.

These findings were revealed in the latest edition of the annual Mercer Workplace Survey. While participants in general are more optimistic about the economy, they are planning to save slightly less over the next 12 months, and those over the age of 50 have lowered their expected savings amounts by about 18 percent. 

“What we see in the attitudes of retirement plan participants is that they are not feeling the rewards of an improving economy in their own personal situation and therefore seem hesitant or feel unable to give up access to immediate cash in order to save for the future,” said Dave Tolve, defined contribution business leader for Mercer’s administration business. “Participants are worried about paying their future bills and are planning on working longer.”

Tolve advised “demonstrating how saving a bit more today can have an enormous impact in meeting anticipated costs of tomorrow, even for those over age 50.”

Stephen Miller, CEBS, is an online editor/manager for SHRM.

SHRM Articles & Resources:

HR's Role in Preparing Workers for Retirement, SHRM Workplace Visions, Third Quarter 2013

Retirement Planning Makes Strides in Workplace, SHRM Online Staffing Management, October 2013

Message to Employees: Saving 1% More Will Boost Retirement Income, SHRM Online Benefits, August 2013

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