“There’s no such thing as nursing homes in Nigeria.” Or so my mother told me when I turned seven. Then she said, “Remember, you have to take care of me when I’m old.”
Panic. I could barely keep my room clean.
But her prophecy has only become more real for me now that she’s retired. The other day she called and joked, “So when am I moving in?” The thing is, I don’t think she was joking at all.
For many first-generation Americans, we are our parents’ retirement plans. There is a cultural expectation that we subsidize all or part of their lifestyle. No matter how much it pains us to admit it, this responsibility can feel like a burden.
On top of it all, parental support can be a difficult topic to discuss with partners and friends from non-immigrant backgrounds. They don’t understand why we can’t just put up more boundaries. And to be honest, neither can we.
As a financial planner, my job is to find practical solutions to the financial problems that arise in everyday life. Here are three exercises you can do today to prepare to support your parents in the future.
1. How Much Does it Cost to Run My Life?
The main goal of this exercise is to understand the cost of your current lifestyle, while also making sure you’re preparing for the future. Many of our parents didn’t have access to financial literacy when they were younger. We have an opportunity to create a different legacy going forward.
Here are some key questions you can ask yourself to understand your current lifestyle:
- How much do I earn every paycheck?
- Do I track and understand my spending and budget each month using tools like Mint.com?
- Do I have at least three to six months of an emergency fund set aside?
- Do I pay my credit card bill off every month and limit my debt/income ratio to 35% or less?
- Do I have a plan to reduce my student loan debt or seek loan forgiveness because I work in the public sector?
Here are more questions you can ask yourself to lay a foundation for future generational wealth and financial stability:
- Do I have a monthly automated savings and investment schedule?
- Am I investing for the long-term in a diversified portfolio of global stocks and bonds?
- If you’re a W-2 employee: Do I contribute at least 10% of each paycheck to available retirement accounts, and max out my retirement accounts where I can?
- If you’re self-employed: Do I contribute to SEP IRA or i401(k) retirement accounts each year?
- Do I have a taxable investment account for excess funds?
If you need a refresher on the basics of personal finance, you can explore Abacus’ free financial literacy course on Abacus Academy.
Remember, it’s completely okay if you’re not able to have all of these recommendations going for you right now. The most important thing is that you’re taking action where you can.
Organize your personal finances.
2. How Much Does it Cost to Run My Parents’ Lives?
Now that you know where you stand, it’s time to talk with your parents about their financial life. This exercise will take courage and vulnerability from all parties.
The main goal of this exercise is to understand how much your parents’ lifestyle costs, and what steps they’ve taken to secure their financial future. This can also be a useful exercise in helping your parents get financially organized in the event something happens to them.
Keep in mind that your parents may have anxiety around money or even shame that they don’t understand how American financial systems work. Be gentle. Let them know you’re asking because you want to be prepared to help them in the future. It took a year before my dad felt open enough to talk to me!
Here are questions you can ask your parents to understand their current lifestyle:
- Do you track your spending or know how much you spend each month?
- Are you still earning income? How much do you earn? How long do you expect to be earning that income?
- Do you have any loans that I should know about?
- Is there anyone back home who is relying on your financial support? How much do you support them financially per year? How much do you want to continue supporting them?
Here are questions you can ask to explore what steps they’ve already taken to secure their financial future:
- What bank accounts do you have, if any? How much have you saved in these accounts?
- What retirement and non-retirement investment accounts do you have? How much have you saved in these accounts?
- Follow-up: Do you manage these investments yourself or does someone else?
- Do you have any property or assets back home? If so, what are they and do you know what they are worth?
- Do you have any properties here in the U.S.? If so, what are they and do you know what they are worth?
- Do you have any life insurance policies or annuities I should know about?
- Do you have a will, trust, financial power of attorney, or health care directive?
Health-related questions can be equally important. For example:
- Do you have any illnesses that will require full-time care?
- Do you have a history of illness in your family that we should be aware of?
Approaching questions like this with genuine curiosity on your part can potentially help your parents feel more open to answering them, leading to more nurturing conversations about the future.
3. How Can I Help?
Now that you know how much it costs to run your life and your parents’ lives, as well as what assets your parents have, you’re ready to create an action plan.
While income constraints may mean you cannot support 100% of your parents’ needs right now, planning for even partial support is a genuinely productive first step.
The main goal of this exercise is to use your new-found clarity and make a difference where you can. First, you can open an account earmarked for Parental Support:
- Create an automated monthly withdrawal from your bank account to your Parental Support account. Depending on your comfort level, you might start by contributing 5% of your disposable income each month, increasing over time.
Next, decide what parts of your parents’ lives you’re willing and comfortable subsidizing. For example, you might excuse yourself from funding parts of their lifestyles you feel are destructive or harmful.
Once you’ve done this, you can brainstorm creative solutions to save more money:
- If you have siblings, convince them to contribute a portion of their incomes each month to the Parental Support account.
- If your parents have property back home, evaluate whether it is possible to sell those assets.
- Consider the feasibility of your parents moving in with you and whether that would help reduce other costs of yours, like child care.
Finally, brainstorm creative solutions for your parents to reduce their cost of living:
- If your parents own their home, discuss downsizing or moving to a less expensive area.
- Consider the feasibility of your parents moving back to their home country.
There are many paths to being creative about finding solutions. Each culture has its unique traditions, so don’t be afraid to draw upon those for help in communicating with your family.
Planning for the Future
Being an adult and having aging parents can be challenging for everyone. Finding ways to communicate openly about everyone’s needs can help ease this transition.
With these three exercises in mind, you’re more than ready to start taking steps to subsidizing your parents’ lifestyles as they age.
At Abacus, we love helping families find solutions to their financial challenges so they can find freedom to explore what matters most in their lives. Schedule an introductory call today to see if Abacus might be the right fit for your needs.