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Most Millennials and Gen Xers know little about what happens when their parents reach retirement age. It is becoming an increasingly real problem, especially for people with middle-income parents.
The retirement affordability crisis is deepening in the U.S. Data analyzed by NORC at the University of Chicago shows that three out of four middle-income Americans will receive financial assistance if they don’t sell their home within 10 years. They say they can’t pay enough for the service. Funded by a grant from the SCAN Foundation.
A large generation, the baby boomer generation, is transitioning into the elderly. NORC predicts that by 2033 there will be 16 million middle-income seniors. NORC’s research overview explains: …Even if they had home equity, nearly 40% would not be able to afford assisted living. ”
Rethink risk
These expenses have become more burdensome for older Americans over time. In 2002, adults 65 and older spent an average of $48,000 a year (adjusted for inflation), according to data from the Bureau of Labor Statistics. Now the average is $58,000, an increase of more than 20%. Currently, the average rent and medical costs for assisted living are $65,000 per year.
As stated in the Harvard University report, “As of 2021, older households with annual incomes of $15,000 to $30,000 had an average of $1,000 per month to cover other expenses after paying housing costs. For those with low incomes, their incomes were on average insufficient to meet housing costs, let alone other basic needs.”
Racial disparities further exacerbate this situation, with people of color experiencing economic hardship as they age.
Most people want their parents to stay at home. The same applies to parents. According to a survey by Today’s Homeowner, 89% of Americans over the age of 55 want to live a certain age.
At the same time, more than half of all Americans feel they are not at a comfortable pace to retire. Younger generations are worried about their future retirement funds and are woefully unprepared to support their parents.
Something has to give. If you’re part of the Sandwich generation, Gen You should start with.
Most financial advice advises calculating how much money you’ll need in retirement and planning your savings around that number. That’s good advice, but they’re probably only applying it to themselves and their dependents. Instead, caregivers should recalculate that number and discuss it with parents.
Tragically, many middle-income seniors may actually benefit by drawing down their savings to qualify for Medicaid, which reduces government support for assisted living and health care. You will be able to receive it.
In addition to understanding that Medicare won’t pay for everything, caregivers need to have a firm idea of what their costs will be.
To avoid being caught off guard by huge monthly expenses, caregivers can hedge their risks by preparing for their parents’ retirement. Such funds can be structured in different ways depending on your risk tolerance. Some people may choose to set aside money just for their parents’ living expenses, while others may want to set up an emergency fund for more serious situations.
have difficult conversations
Understanding all this requires having difficult conversations with parents. It’s important to get everyone on the same page as quickly as possible.
For many parents, the thought of receiving help from their children is embarrassing. Some people may feel guilty about burdening themselves. But families who try to hide these discussions can face unexpected and devastating consequences when a loved one becomes ill or unable to care for them. When this happens, no one wants to think about money.
If that helps, you can frame it as a joint financial planning session. That way everyone feels like they play an important role. I’ve had conversations like that with my parents, and it always worked out better when I approached them with a curious and open attitude.
These conversations weren’t easy, but they went a long way in reassuring me about our financial health going forward.
Supporting policy changes
To solve this problem at a macro level, we need to work to support policies that support caregivers.
In particular, the bipartisan Long-Term Care Credit Act, introduced in 2021, will be an important step in reducing the burden on caregivers. The bill provides a 30% tax credit for qualified long-term care expenses over $2,000, with a maximum credit of $5,000. We also receive extensive support from organizations such as AARP, Alzheimer’s Association, United Way, and Walgreens.
Additionally, a growing number of states are enacting laws requiring paid family leave for private employers. As of September 2023, eight states have mandated caregiver leave, and five more states plan to implement these policies by 2026.
Writing letters to political representatives, speaking at town halls, and talking about caregivers’ struggles in the media can also help influence policy makers’ views on caregiver support.
Even in states without mandatory leave policies, some workplaces are promoting caregiver leave policies. Employers provide these voluntarily, but the more paid leave policies are enacted, the more this idea becomes normalized.
Addressing the crisis of affordability among older adults will require a combination of small steps like this and courageous changes among society’s most influential institutions. With dedication, we can help ensure parents have what they need to age gracefully.
Sarita A. Mohanty is President and CEO of . SCAN Foundationan organization committed to addressing the systemic factors that impact the financial security of older adults.
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The opinions expressed in Fortune.com commentary articles are solely those of the author and do not necessarily reflect the author’s opinions or beliefs. luck.
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