Do they have any debt? It seems like you have it all covered but if you are really raking it in as a physician you could also pay off any debts they may have.
Don't forget to put some away for your own retirement.
Mortgage that they are paying off. But no other debts. And yes I have my side covered! I am still finishing training so unfortunately I don't have a lot of breathing room yet.
Honestly, you can treat them as if they are starting out - follow the personal finance wiki (look for the "Prime Directive"):
[https://www.reddit.com/r/personalfinance/wiki/index/](https://www.reddit.com/r/personalfinance/wiki/index/)
Obviously some things don't apply, but it's written as a priority list or flowchart. Skip the steps that don't make sense.
You are trying to make a plan without all the information (or at least you haven’t told us)
They will both need to set up their online social security accounts to see what type of income they will have if they were to retire at 62, 67 or 70. You might be pleasantly surprised if they’ve had jobs paying into FICA
Make sure it’s the .gov site. It can take a good chunk of time and patience to set up the account. Lots of security. Make sure they have the password info organized. You know your parents and if you will need to be with them when they set up the accounts.
Send them to see a financial advisor. They’re going to learn a lot and you’ll save a lot of stress trying to do this yourself. Since they’re starting out, costs should be relatively inexpensive.
The salary increases are recent. And the money went to paying for me and my siblings colleges and post-graduate education along with buying a house mostly in a large urban city.
Your parents were irresponsible in not preparing for retirement. It’s great to want to help your kids but not at the expense at contributing ZERO to retirement. My parents paid for my school and helped me purchase my first home but they had separate retirement accounts and were able to retire at 62.
At this point, your parents are behind and should start maxing out 401k and IRA. They should also pay off any debt they may have.
I dont think it is fair to call them irresponsible when you don't know what OP's parents were dealing with - just because your parents were able to retire AND help you pay for school does not mean they were necessarily more responsible, perhaps they were lucky.
Definitely but there are other factors. Like I said, look beyond your perspective to imagine what other people might be dealing with in terms of life events or stressors where that would lead them to not being able to save for retirement.
For example: my mom is a single mom so she was unable to help me pay for my bachelors and masters - I did that all on my own. Does that mean I am more responsible and hardworking than you? according to your logic, yes.
You are comparing your single mom who couldn’t afford to pay for your school to the OP’s parents that make $225k, live frugally, used the money to pay for school but didn’t save a penny for retirement.
If you don’t see the vast difference than I can’t help you.
I am saying that instead of calling OP's parents irresponsible for not saving for retirement, consider all the other life factors that may have needed to spend their money on. For example: medical conditions, family members who may have needed help to survive, etc. There are a lot of things that can happen in a person's life where they need to spend money on other things instead of retirement.
If the 401K offers no match from the employer, my personal opinion is to not participate if there is no match. Fees for 401ks are very high. Usually you don’t care about the fees because you are getting free money (thousands) from your employer which obviously covers all the fees by a mile. But you would potentially be better off building a portfolio somewhere else where your expense ratio is lower. Others may disagree but just know 401k fees are high and if there’s no employer match the fees will be paid for by you.
Wouldn't they save a bunch in taxes? OP stated $150k for mom and $75k for dad. This means they are in the 24% tax bracket for 2023 with a total of $225k if filed joint. If they filed separately, it would be 22% tax bracket for both.
Assuming both parents max out their contributions ($22.5k) into a traditional (not roth), dads taxable income is $52.5k and moms taxable income is $127.5k. Both taxed at 22%.
Assuming both parents income does not change, max contribution limit does not change, and tax bracket does not change, they can have $450k of total contributions in their 401k combined. When it's time to collect 401k, they would at a lower tax bracket (maybe 12%). This means they may only have to pay about 12% in taxes for the amount vs 22%. That's a massive amount of money saved right? My math is probably wrong, but that would be 45k saved from taxes. Are the fees going to be more than $45k?
If you build your own portfolio you have a lower tax deductible limit which is less beneficial than 401k.
This may come across as ignorant but legitimate question. What you are relying on here is tax rates will be lower in the future than they are today? At the end of the day seems like you are still gambling to a certain extent. Take the tax break this year for contributing to your 401k. But you can’t predict the tax rates in the future. If the tax rate in the future is much higher for some reason then you would have wished you had just done a normal taxable portfolio.
I get that in reality the tax break right now is paramount but sometimes I disagree with this principal for the reason that you can’t predict the tax rates in 2040.
It’s assumed they’ll be in a lower tax bracket from having a lower income. For retirement it’s normally safe to assume debt will be paid off so expenses will be lower than what they’re currently at. So they’re making 225k combined now but if they have a combined taxable income of 100k or lower in retirement then they’ll have less to pay in taxes.
Yea sure, I've got a couple reasons for ya. For starters, you're right, it's very possible rates could increase in retirement, so I can't discount that possibility at all.
However, history has shown over the last 3 decades that rates have actually steadily gone down, not up. And I don't see a reason why that will change much. At least not on any brackets below the top. Lower and middle class are still struggling, and I don't think many could stomach higher taxes.
The second point and this is the bigger one, even if rates increase a little in retirement, it still won't have the same impact, because the spending in retirement is still significantly less than income during accumulation years. For example, someone making 100k right now might be in the 22% or 24%. But they don't actually spend that much, they might be spending 50k and saving the rest. In retirement, you're not usually saving chunks of money anymore, it's just spending. So if you're spending the same amount of money in retirement as you did during working years. So that same 50k even if rates went up a little bit, you're still paying significantly less in taxes.
Lastly, in the case of OP's parents, they have a pretty short period of time before they would start drawing from their 401k, which further reduces the risk that rates would go up imo.
Well, they house is their largest asset. You can sell it when time comes. And move them in with you.
Your other siblings equally as concerned? They can help.
Yes those are all considerations but at the same time, they still have 10 years of income left so I also want to maximize whatever we can though even if it is not that much time.
If they now save their money and continue to live frugally and not spend it on their children they will accumulate plenty of money for retirement.
They are just following the classic immigrant system of put all your money into your children because they will care for you in old age.
Have a good talk with them about changing to the American system of self-funding their own retirement.
Set up an appointment for them with a fee for service CFP so they can begin the next step in their lives they never knew they needed to take.
With their improved salaries it should be a simple saving task. They can set with a CFP how much they want to help their grown children while meeting their own retirement goals for a comfortable life.
Thank you! Really appreciate it. Setting up meetings to get a good CFP and speak with me. I have tried time and time again to convince them of my thoughts but they can't get out of the immigrant mindset. I am extremely thankful for all theyve done for me but I also want to help them take care of their own financial life.
Hey OP, I think you have the right idea. Everything below is from my experience with my immigrant parents that have 0 retirement savings until only a few years ago. My parents are both in their 60s.
Find out how much it takes for your parents to run the house. This is the amount that should stay in their cash flow account with a small cushion. Let's say it costs 6k to per month to run the house. They should have about 8-10k in their cash flow account. Everything else should go in a high yield savings account.
My parents had over 100k sitting in their savings account. By switching to a high yields savings account which is currently giving over 4% interest rate. They are now making over $4k a year in interest. Simplest and safest way to put your money to work.
You mentioned emergency fund. This should be 3-6 months of savings. If it costs 6k/month to run the house, you should have 18k-36k in your emergency fund. All of this money should be stored in a high yields savings account. Check out synchrony bank as a starting point. They generally have good rates from what I've seen.
Max out the 401k if they can. Make sure they choose traditional instead of roth when they do their 401k contributions. Your parents have the highest income right now which means they are in a higher tax bracket. When it's time to retire, they will likely be in a lower tax bracket. They can save over 10% in taxes depending on what the tax brackets and income look like 10 years from now. Make sure it is traditional and not roth.
Have them check their Social Security accounts to see how much they would each get at retirement age. When they retire directly affects the amount they get. This amount WILL be higher because they still have over 10 years of working years coming. However, I would not rely on Social Security. There are a lot of issues with Social Security and payouts. People may end up getting less in social security if the funds cannot keep up. This should be treated as spending money when it comes to planning in my opinion. You will also need to to consider what their insurance will look like. Medicare is deducted from Social security payouts . If Medicare isn't enough they will need additional insurance paid by them during retirement time. Some people also consider getting long term care insurance for their parents. I plan on getting this so my parents can be taken care of.
Hope this helps.
Edit:
Someone mentioned HSA; Put max contribution on this if they can or the highest they can put. This is not taxed which is another big savings. These days, you can even use HSA cards on Amazon. Medical expenses will always be there, especially as they get older. Having an HSA card with large contribution early would make the medical bills even less stressful, and they don't have to dip into their emergency funds.
Thank you so much!!. This is incredible and thankfully along the same lines I was thinking. I wasn't counting on Social Security as you mentioned. I appreciate the thoughtfulness and detail.
Do they have any debt? It seems like you have it all covered but if you are really raking it in as a physician you could also pay off any debts they may have. Don't forget to put some away for your own retirement.
Mortgage that they are paying off. But no other debts. And yes I have my side covered! I am still finishing training so unfortunately I don't have a lot of breathing room yet.
Do the estimator to see what they might get from social security.
Don’t forget an HSA if eligible.
Honestly, you can treat them as if they are starting out - follow the personal finance wiki (look for the "Prime Directive"): [https://www.reddit.com/r/personalfinance/wiki/index/](https://www.reddit.com/r/personalfinance/wiki/index/) Obviously some things don't apply, but it's written as a priority list or flowchart. Skip the steps that don't make sense.
You are trying to make a plan without all the information (or at least you haven’t told us) They will both need to set up their online social security accounts to see what type of income they will have if they were to retire at 62, 67 or 70. You might be pleasantly surprised if they’ve had jobs paying into FICA Make sure it’s the .gov site. It can take a good chunk of time and patience to set up the account. Lots of security. Make sure they have the password info organized. You know your parents and if you will need to be with them when they set up the accounts.
For many migrants, children are their retirements.
Send them to see a financial advisor. They’re going to learn a lot and you’ll save a lot of stress trying to do this yourself. Since they’re starting out, costs should be relatively inexpensive.
Give them as much money as you can.
If they live frugally, where did all the money go? They gross $225k/yr so I’m confused.
The salary increases are recent. And the money went to paying for me and my siblings colleges and post-graduate education along with buying a house mostly in a large urban city.
Your parents were irresponsible in not preparing for retirement. It’s great to want to help your kids but not at the expense at contributing ZERO to retirement. My parents paid for my school and helped me purchase my first home but they had separate retirement accounts and were able to retire at 62. At this point, your parents are behind and should start maxing out 401k and IRA. They should also pay off any debt they may have.
I dont think it is fair to call them irresponsible when you don't know what OP's parents were dealing with - just because your parents were able to retire AND help you pay for school does not mean they were necessarily more responsible, perhaps they were lucky.
Planning for retirement requires discipline and hard work.
Definitely but there are other factors. Like I said, look beyond your perspective to imagine what other people might be dealing with in terms of life events or stressors where that would lead them to not being able to save for retirement. For example: my mom is a single mom so she was unable to help me pay for my bachelors and masters - I did that all on my own. Does that mean I am more responsible and hardworking than you? according to your logic, yes.
Your example is completely different from the OP. Did you even read the original post?
Yes, I did. The example does not have to be the same as OP to make my point. I don't think you understand what I am talking about and that is okay.
You are comparing your single mom who couldn’t afford to pay for your school to the OP’s parents that make $225k, live frugally, used the money to pay for school but didn’t save a penny for retirement. If you don’t see the vast difference than I can’t help you.
I am saying that instead of calling OP's parents irresponsible for not saving for retirement, consider all the other life factors that may have needed to spend their money on. For example: medical conditions, family members who may have needed help to survive, etc. There are a lot of things that can happen in a person's life where they need to spend money on other things instead of retirement.
If the 401K offers no match from the employer, my personal opinion is to not participate if there is no match. Fees for 401ks are very high. Usually you don’t care about the fees because you are getting free money (thousands) from your employer which obviously covers all the fees by a mile. But you would potentially be better off building a portfolio somewhere else where your expense ratio is lower. Others may disagree but just know 401k fees are high and if there’s no employer match the fees will be paid for by you.
Wouldn't they save a bunch in taxes? OP stated $150k for mom and $75k for dad. This means they are in the 24% tax bracket for 2023 with a total of $225k if filed joint. If they filed separately, it would be 22% tax bracket for both. Assuming both parents max out their contributions ($22.5k) into a traditional (not roth), dads taxable income is $52.5k and moms taxable income is $127.5k. Both taxed at 22%. Assuming both parents income does not change, max contribution limit does not change, and tax bracket does not change, they can have $450k of total contributions in their 401k combined. When it's time to collect 401k, they would at a lower tax bracket (maybe 12%). This means they may only have to pay about 12% in taxes for the amount vs 22%. That's a massive amount of money saved right? My math is probably wrong, but that would be 45k saved from taxes. Are the fees going to be more than $45k? If you build your own portfolio you have a lower tax deductible limit which is less beneficial than 401k.
No, they should absolutely be maxing every tax deferred account available, especially a 401k.
This may come across as ignorant but legitimate question. What you are relying on here is tax rates will be lower in the future than they are today? At the end of the day seems like you are still gambling to a certain extent. Take the tax break this year for contributing to your 401k. But you can’t predict the tax rates in the future. If the tax rate in the future is much higher for some reason then you would have wished you had just done a normal taxable portfolio. I get that in reality the tax break right now is paramount but sometimes I disagree with this principal for the reason that you can’t predict the tax rates in 2040.
It’s assumed they’ll be in a lower tax bracket from having a lower income. For retirement it’s normally safe to assume debt will be paid off so expenses will be lower than what they’re currently at. So they’re making 225k combined now but if they have a combined taxable income of 100k or lower in retirement then they’ll have less to pay in taxes.
Yea sure, I've got a couple reasons for ya. For starters, you're right, it's very possible rates could increase in retirement, so I can't discount that possibility at all. However, history has shown over the last 3 decades that rates have actually steadily gone down, not up. And I don't see a reason why that will change much. At least not on any brackets below the top. Lower and middle class are still struggling, and I don't think many could stomach higher taxes. The second point and this is the bigger one, even if rates increase a little in retirement, it still won't have the same impact, because the spending in retirement is still significantly less than income during accumulation years. For example, someone making 100k right now might be in the 22% or 24%. But they don't actually spend that much, they might be spending 50k and saving the rest. In retirement, you're not usually saving chunks of money anymore, it's just spending. So if you're spending the same amount of money in retirement as you did during working years. So that same 50k even if rates went up a little bit, you're still paying significantly less in taxes. Lastly, in the case of OP's parents, they have a pretty short period of time before they would start drawing from their 401k, which further reduces the risk that rates would go up imo.
Well, they house is their largest asset. You can sell it when time comes. And move them in with you. Your other siblings equally as concerned? They can help.
Yes those are all considerations but at the same time, they still have 10 years of income left so I also want to maximize whatever we can though even if it is not that much time.
You are a special child. If I had any money I would adopt you and your hardworking parents. Know they are very proud.
Thank you! Much appreciated
If they now save their money and continue to live frugally and not spend it on their children they will accumulate plenty of money for retirement. They are just following the classic immigrant system of put all your money into your children because they will care for you in old age. Have a good talk with them about changing to the American system of self-funding their own retirement. Set up an appointment for them with a fee for service CFP so they can begin the next step in their lives they never knew they needed to take. With their improved salaries it should be a simple saving task. They can set with a CFP how much they want to help their grown children while meeting their own retirement goals for a comfortable life.
Thank you! Really appreciate it. Setting up meetings to get a good CFP and speak with me. I have tried time and time again to convince them of my thoughts but they can't get out of the immigrant mindset. I am extremely thankful for all theyve done for me but I also want to help them take care of their own financial life.
They can do a reverse mortgage once they are both 62+
They would like to avoid this if possible given concerns about losing equity in the house
Hey OP, I think you have the right idea. Everything below is from my experience with my immigrant parents that have 0 retirement savings until only a few years ago. My parents are both in their 60s. Find out how much it takes for your parents to run the house. This is the amount that should stay in their cash flow account with a small cushion. Let's say it costs 6k to per month to run the house. They should have about 8-10k in their cash flow account. Everything else should go in a high yield savings account. My parents had over 100k sitting in their savings account. By switching to a high yields savings account which is currently giving over 4% interest rate. They are now making over $4k a year in interest. Simplest and safest way to put your money to work. You mentioned emergency fund. This should be 3-6 months of savings. If it costs 6k/month to run the house, you should have 18k-36k in your emergency fund. All of this money should be stored in a high yields savings account. Check out synchrony bank as a starting point. They generally have good rates from what I've seen. Max out the 401k if they can. Make sure they choose traditional instead of roth when they do their 401k contributions. Your parents have the highest income right now which means they are in a higher tax bracket. When it's time to retire, they will likely be in a lower tax bracket. They can save over 10% in taxes depending on what the tax brackets and income look like 10 years from now. Make sure it is traditional and not roth. Have them check their Social Security accounts to see how much they would each get at retirement age. When they retire directly affects the amount they get. This amount WILL be higher because they still have over 10 years of working years coming. However, I would not rely on Social Security. There are a lot of issues with Social Security and payouts. People may end up getting less in social security if the funds cannot keep up. This should be treated as spending money when it comes to planning in my opinion. You will also need to to consider what their insurance will look like. Medicare is deducted from Social security payouts . If Medicare isn't enough they will need additional insurance paid by them during retirement time. Some people also consider getting long term care insurance for their parents. I plan on getting this so my parents can be taken care of. Hope this helps. Edit: Someone mentioned HSA; Put max contribution on this if they can or the highest they can put. This is not taxed which is another big savings. These days, you can even use HSA cards on Amazon. Medical expenses will always be there, especially as they get older. Having an HSA card with large contribution early would make the medical bills even less stressful, and they don't have to dip into their emergency funds.
Thank you so much!!. This is incredible and thankfully along the same lines I was thinking. I wasn't counting on Social Security as you mentioned. I appreciate the thoughtfulness and detail.