The money questions many retirees are asking this Thanksgiving
Jill Hitchcock is the senior executive vice president responsible for the U.S. private client group at Fisher Investments, a fee-only investment adviser.
Thanksgiving will be very different this year as the COVID-19 pandemic prevents many families and friends from gathering in person to share food, tell stories, and discuss the big questions of life.
I’m used to having a big crowd around my table at Thanksgiving, solving all the world’s problems as we eat way too much. Financial questions may be especially common this year as many have struggled with pandemic-related job loss or stock market volatility.
Since we may not be able to get together with our families, I’ll share my answers to some retirement questions that may be top of mind for you or your older relatives this Thanksgiving.
In these tough times, what is the best way to help my adult children?
If your parents are lucky enough to be able to fund a comfortable retirement and have a little money left over, they may wonder whether to leave that money as an inheritance or use it now to help their adult children. There isn’t a single right answer to that question, but it’s a great topic for discussion. Money can be a sensitive subject, but I’m a big proponent of having open, honest discussions to avoid misunderstandings later.
One great way for parents to help their adult children is by setting up a college savings account for their grandchildren. If done when the grandchildren are young, the power of compounding works in your favor, turning a modest contribution into a substantial boost when the grandkids hit college age.
Another way to help is with a contribution to a major expense, like chipping in for a down payment on a first home. But first, consult with a tax advisor about gifting laws so you don’t inadvertently give yourself an additional tax burden.
Some families — mine included — believe one of the best ways to use that money is to pay for family adventures. Maybe you can start a family hobby (virtually, if you don’t live nearby!) or take a family vacation. I’m incredibly thankful that my mom has treated us to an annual family vacation in Yosemite National Park, where we’ve made amazing memories.
And keep in mind that “help” isn’t always financial. Pre-COVID, I used to travel often for business, and my mom would leave a homemade meal in the fridge for me — nothing better than coming home late at night, hungry and tired, to a delicious meal made by your mom. Yep — I’m well into my 40s and my mom still cooks for me!
With stock markets so volatile, should I just invest in bonds?
This winter’s lockdown-driven market plunge was terrifying — especially for retirees who rely on their investments to cover living expenses. You may think you have enough retirement savings to avoid stocks altogether and just invest in bonds or other lower-volatility, lower-returning securities from here on out — but that could be a big mistake! Try to put this year’s volatility in perspective and think longer term.
As I wrote in August, retirees today may live longer than they expect. Great news — but it also means you must plan to cover your living expenses for longer! Rather than investing heavily in bonds or fixed income, the safer move may be to invest more in stocks to plan for a potentially longer time horizon.
That’s not to say you won’t need any bonds — you may, depending on your situation. But if you need your retirement savings to last 20 or 30 years, stocks’ long-term growth can be critically important in helping to maintain purchasing power and avoid running out of money.
What if I’m running short on retirement funds? Is a reverse mortgage a good idea?*
Some financial professionals may present reverse mortgages as an option for retirees wishing to age-in-place. Reverse mortgages are essentially loans that individuals over the age of 62 can take against the value of their homes. Reverse mortgages can increase disposable income in retirement or help retirees cover healthcare or other essential expenses. But there are significant risks and trade-offs to understand.
While reverse mortgages can seem like “free money,” in reality, they can quickly reduce home equity and deplete assets. The borrower could also face substantial interest rate risk. If your reverse mortgage has a variable rate (meaning your interest rate fluctuates) and interest rates rise, you may end up owing much more in interest on the loan than you’d originally planned.
Reverse mortgages also don’t eliminate your responsibility to pay property taxes and insurance premiums and to perform regular maintenance. If you are unable to do so, you (or your loved ones) could be required to repay the loan in its entirety. So while a reverse mortgage may be helpful to some, you should understand the potential risks. It’s not free money.
Another option might be returning to work on a part-time or consulting basis. Retirement doesn’t have to be all or nothing. Many retirees have a tremendous depth of experience they can leverage or spare time they can put into a part-time job. Even a relatively low-paying part-time job can be just the extra bit you need to bridge the gap in your retirement income.
Retirement comes with many big financial decisions and a misstep could be life-altering. If you’re a retiree — or if you’re like me and enjoy helping your parents and grandparents — I hope this helps and gives you some financial food for thought this Turkey Day.
*For more information on reverse mortgages, check out the Federal Trade Commission’s website: https://www.consumer.ftc.gov/articles/0192-reverse-mortgages.
Read more information and tips in our Retirement planning section
