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Helping your parents financially while saving for retirement
November 2023
We address how you can provide for your parents financially while still securing your own financial future.
Key takeaways
- Having access to their financial information will give you a better understanding about their situation
- Healthcare costs are becoming increasingly onerous so it's worth reviewing your parents' private health insurance
- It's an admirable thing to help your parents but be clear about what that help consists of.
Many people are finding themselves in a situation where they need to provide financial support to their aging parents.
Balancing the responsibility of helping your parents financially while saving for your own retirement, is no doubt challenging.
Effective financial planning can help you provide for your parents while still securing your own financial future.
Assessing your parents' financial situation
Review assets and savings
It can be tough to start a conversation about money with your parents, but it's one of the most important conversations you can have.
Having access to their financial information will give you a better understanding about their situation. More importantly, you'll know if you're going to be required to help them financially in a significant way.
Ideally you want a clear picture about the assets they own, savings and debts, plus an understanding of their income and expenses. There are budget planners and phone apps you can use to get visibility around spending habits. You may also want to use the MoneySmart retirement planner calculator to give an idea of how long their money could last.
If you find they don't have enough income to support their retirement, there may be things they can implement to change it. This could include cutting down expenses, moving to a more affordable home or renegotiating their debt. It's also important to make sure they are maximising any social security entitlements.
Review health costs and insurance
As your parents age, their health can become more fragile, and the cost of medical care can increase significantly. Being aware of the potential financial burden that healthcare can place on your parents, is therefore important.
Understanding your parents' private health insurance coverage and any available healthcare subsidies or concessions is also essential.
Consider home maintenance costs
Many elderly parents wish to age in their own homes. However, this may require modifications for safety and accessibility.
These types of changes come at an expense so they may need to factor in additional costs for things like installing ramps, home repairs or transport assistance.
Government assistance programs
Australia offers various government programs designed to assist aging individuals. Some of these include:
- Age pension: if they're eligible, your parents may be able to access the full or part Age Pension. This provides financial support to help cover living expenses during retirement
- Aged care support: if your parents qualify, they may be able to access the aged care system which is designed to help seniors access various services, such as in-home care or residential care, depending on their needs
- Carer allowance/ Carer payment: these payments provide financial assistance to individuals who take care of elderly parents or relatives who have a disability, illness, or age-related condition.
Assessing your own financial situation
Before you can effectively help your parents, it's important to evaluate your own financial position, as this information will serve as the foundation for your future financial planning. Here's how to go about it:
- Current savings and investments: knowing what your current financial resources are is crucial for planning future expenses. This means reviewing your savings and super accounts. If you have any investments such as shares or property, tally up their value
- Debt: evaluate any outstanding debt, such as mortgages, loans, and credit card balances. It's crucial to know your total debt and the interest rates associated with these obligations
- Retirement goals: define your retirement goals, including the age at which you plan to retire and your desired lifestyle in retirement. This information will help you calculate how much you need to save
- Budgeting: learn how to create a budget that takes into account your daily living expenses, savings goals, and funds available for supporting your parents. Check out our article on the 50/30/20 budgeting strategy to help you with this.
Invest in your own retirement
If you find you need to make financial adjustments to increase your retirement savings, one option could be to contribute more to your super on a regular basis using your before-tax or after-tax income. There are tax benefits that come with this too.
For example, if you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you'll reduce your taxable income for the financial year and potentially pay less tax, while adding to your super balance. It's a win-win.
There is a cap for concessional (before-tax) contributions which is currently $27,500 per financial year. If you have not contributed the whole $27,500 in a financial year, you may be able to carry forward the unused amount to the next year. This means you could contribute more than $27,500 in one year, if you meet certain criteria.
However, if you exceed your concessional contributions cap, the excess concessional contributions are included in your assessable income. These are taxed at your marginal tax rate (the tax rate you pay on your personal income) less a 15% tax offset. Other taxes may also apply.
Set clear boundaries
It's an admirable thing to help your parents but be clear about what that help consists of. For example, it's one thing to help out with their bills occasionally, but it's another to have your name placed on loan documents!
If that isn't the type of help you had in mind, it's important to communicate that and stick to it.
Seek professional help
Enlisting the help of an expert, such as a financial adviser or coach, may alleviate some of your pressure.
Better yet, financial experts can assist in developing appropriate strategies to ensure you're meeting your own retirement goals as well as supporting your parents.
For example, you may need to reduce your current spending to help your parents retire more comfortably. That's a short-term cost to you but if it means your parents can keep important assets like the family home, you may benefit from that in the long-term.
Frequently Asked Questions
How can I determine my parents' financial needs as they age?
To assess your parents' financial needs, it's essential to consider their healthcare costs, home maintenance requirements, and changes in daily living expenses. Open and honest discussions with them about their financial situation are also crucial.
What are some implications of providing financial support to aging parents?
Providing financial support to your parents may have implications, for those who are receiving payments from Centrelink. It's worth speaking with a financial adviser to understand these implications.
We all want to help our parents if they're struggling financially, but it's important to think of your own situation too. And don't forget, money isn't everything-one of the best things you can do for your parents is to spend quality time with them while you've got it!
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