Millennial covering her eyes

The hidden retirement expense most millennials miss

AgeUpFamily, Money

You’re doing everything right: saving a decent percentage of your income, getting the full 401(k) match, and you even started a 529 account to save for your kids’ college fund. But even if you think you have all your bases covered, there’s a potentially major expense almost two out of three millennials and Gen Xers aren’t preparing for, and unfortunately it could put a permanent dent in your retirement plans.

Between Social Security’s projected shortfalls, disappearing pensions, baby boomers’ longevity, and (thanks partly to the 2008 recession) a widespread lack of retirement savings, a large number of millennials and members of Generation X may eventually find themselves becoming the primary source of financial support for their parents.

At AgeUp, we were curious just how much the younger generations know about their parents’ finances and how they’re preparing for the future. After conducting a recent study of over 1,400 people between the ages of 25-44, the results show there’s some cause for concern.

Nearly three-quarters of millennials and Gen Xers don’t know if their parents will need financial help later in life.

Half of our survey respondents said they knew little about their parents’ finances, and 21% knew nothing at all. That means nearly three-quarters of millennials and Gen Xers don’t know if their parents will need financial help later in life. It’s hard to prepare for a problem if you don’t know if it exists.

A few extra golden years

If your parents are at or near the end of their careers, their retirements may last longer than you think. The average life expectancy from birth in the U.S. is 78.7 years, but some people die fairly young, which brings the average down for everyone. For people who have already lived to age 65, life expectancy is significantly higher.

According to Social Security’s actuarial tables, a 65-year-old woman can expect to live to 85.5, and a 65-year-old man can expect to live to age 82.9. The figures keep improving from there. By age 70, women and men can expect to live to 86.6 and 84.4, respectively. At 80, life expectancy jumps to 89.7 and 88.3, and by 90, those figures are 94.9 and 94. That’s not even considering potential medical breakthroughs that could increase life spans even more. (Some experts even think living to 120 could become routine.)

Many boomers may go bust

Baby boomers’ longer lifespans are great news, obviously. We all want our loved ones to live long and healthy lives, but those extra years can be expensive. We wanted to see what the financial picture looks like for the parents of millennials and Gen Xers, so we also ran a survey of nearly 1,400 people between 50 and 75.

The results are alarming: almost 73% of respondents have less than $250,000 in retirement savings, and just about half reported having less than $50,000. While $250,000 might sound like a lot of money, the average 65-year-old couple will need $387,000 for medical costs alone, according to research from HealthView Services.

The boomers we surveyed know there’s a potential problem ahead. Two out of three said they worry about running out of money in their later years, and more than a third said they expect their children to take care of them if they outlive their retirement savings.

More than a third of baby boomers said they expect their children to take care of them financially if they outlive their savings.

Unfortunately, boomers can’t necessarily rely on Social Security alone to make ends meet in retirement. Social Security is intended to replace only about 40% of the average worker’s income. Even worse, benefits will need to be slashed by around 23% starting in 2035 if reforms aren’t made, according to the Social Security Administration. That leaves millions of seniors who will potentially need help from their families to fill in the financial gaps in the coming decades.

Starting the conversation

The first step in preparing for the future is talking to your parents about their financial situation. But you probably already know that: over 80% of our millennial and Gen X respondents said it’s important to take your parents into account when making long-term financial plans. But when we asked about actions, only around 40% discuss finances with their parents even occasionally, and just 36% have already started to account for their parents in their retirement plans.

The disparity might be due to the fact that talking finances with your parents can be incredibly awkward. In fact, almost 25% of people said talking to their parents about money was an even more taboo topic around the dinner table than sex!

Money can be a touchy subject with anyone, but asking parents about their finances can be especially sensitive. It can seem like you’re trying to gauge a potential inheritance, and no one wants their parents to think they care more about money than their well-being. Secondly, after a lifetime of caring for you, the role-reversal of becoming a parent’s caregiver or provider can make for an awkward transition.

Uncomfortable as it may be, the money talk is a conversation we all need to have. According to finance expert and author Cameron Huddleston, one option is to say you’re currently doing some retirement planning of your own and would like to ask for advice. Other options include using a story you’ve heard about others who weren’t prepared, or choosing a discussion of a recent life event as a jumping-off point. For more in-depth tips on starting the conversation or knowing what questions to ask, check out our guide on talking to parents about their finances.

Be ready for the best-case scenario

Get guaranteed late retirement income for you or a loved one, with no market risk and premiums starting at just $25 a month.

Get an estimate