Easan Arulanantham:
How do I plan for my aging parents who don’t have enough money for retirement.
Tom Vaughan:
That’s a tough one, right? I mean, basically kind of getting into what’s called the sandwich generation, you know, where you have a person or a couple that are, you know, got kids, they’re caring for the kids, maybe they’re, you know, putting their kids through private schools or colleges or whatever. And then their parents need money, too. And so they’re kind of sandwiched between these two, makes it really difficult to do what I just said, save, you know, it’s difficult to maybe buy a house if that’s if that hasn’t happened already. Those types of things, because, you know, there’s a need on both sides. Here’s an interesting thing to think about here, because we keep talking about the three different buckets of money, where you put money. So one is, you know, the retirement plans, like a 401k, or an IRA, and other ones have tax free, which would be like a Roth IRA. But the third one is this taxable bucket, right. So this can just be savings checking brokerage accounts, but things that aren’t in a retirement plan. And one of the things that’s important about building that up is if your parents need help, how are you going to get that if all you have is money in retirement plans, and you’re not really even 59 and a half yet, you can’t withdraw very easily, it doesn’t make a lot of sense to withdraw from your 401k, because your parents need money for their care, or whatever it might be.
So this is the power of having that liquid asset that you can, you know, use to support these things. Ideally, and we’ve run into this in a few plans where somebody knows that there’s the possibility that they’re going to be taken care of one or both of their parents, because they know their situation, they know what’s happening. And so we’ll put that in the plan as a possible future issue, and try to figure out what savings rate might need to be done to make that happen. Maybe they don’t need it, but it’s often nice to then end up having the money, right. And so you know, I mean, if you end up having to spend $30,000, but only had to save 20, and you made the other 10, on growth in your investments while you’re waiting for this thing to happen. Right. So that’s the ideal scenario. But it’s, it’s a tough one. Hopefully, if there’s more than one child, there could be more than one person contributing also, right, I have seen that too, where everybody’s kind of trying to help out. As far as that goes, although there isn’t an even income distribution amongst kids, in my opinion, some are making more than others. So, you know, it can be a little bit interesting to see how that works. But, you know, it might not be solely your responsibility, unless you’re an only child or something, which is possible. But anyway, it’s it’s an interesting area. You know, we don’t see it within our practice, because our clients are the parents with the money. And, you know, some of them are, even their parents had money, too, you know, there is sort of a generational thing. Everybody learned how to save, and it just continues to go down. But there are certainly exceptions to that rule.
Easan Arulanantham:
Yeah. And so there’s one exception, you can access your HSA, for your parents if they’re a qualified, dependent. And so that’s one way you could be saving to an HSA. But having your parents as a qualified dependents a little bit, only one person can have them as a dependent. Yeah. And so when you split against family members, it you can’t all pull from an HSA to pay for their medical needs. Yeah. And it has to be a qualified medical need to or whatever qualify for HSA. But in fact, make HSA pretty flexible, so it can cover like Medicare premiums. You know, you can actually do remodels the house if it’s required for health. So there, there’s a lot of things you can do with HSAs.
Tom Vaughan:
Yeah, it’s good. Yeah, that’s a good point, actually. And that might be one of the reasons not to spend all your HSA money that you put in every year, right. So if I put in, you know, $5,000, and I have $5,000 worth of expenses, I take it right back out, that HSA grows tax free, maybe you leave it in there, pay the 5000 without pocket money, and then let that grow to 6000 or 7000, or whatever, add five the next year. And pretty or, you know, whatever number it is, I’m making that up. But eventually you have more money in that HSA and maybe some of it goes to your parents, and that’s, you know, tax free growth, which is really useful, or you use it for yourself and your retirement. So that’s a strategy we’re seeing more and more employed with HSAs is this concept of not putting in taking out in the same year, which is very common, is actually letting them grow. So that when you get into retirement age, you know, you’ve had this big tax free growth. It’s kind of like a Roth IRA in that regard. And you can take money out, you know, fairly efficiently as far as that goes without any taxes.
Easan Arulanantham:
And like if you’re like super like organize and you’re like super good about your receipts. If you keep your receipts, you can reimburse yourself at a later date from your HSA, your medical expenses, okay? And so that’s like a cool way if you’re trying to like control your income and just so maybe you’re you know, you need the extra money and you don’t raise your income, you could rate use those receipts to reimburse your self. But you need a really good like organized system of files and all that stuff to keep everything. Yeah, because you can’t you can’t just go to your insurance usually SB, they require receipt and it’s like not even like, what they usually send in is like kind of like the insurance says, we did this and you paid this. Those are usually worked out to be received.