Summer vacation is the perfect time to visit with family you haven’t seen in awhile as you enjoy the leisure activities – and check up on how your parents are really doing.
At some point, though, maybe you notice something more troubling – one of your parents is having trouble remembering, or a sudden weight loss has been ignored. That’s when the squeeze begins for the sandwich generation, with the difficult and complex steps you need to contemplate, including figuring out their financial and living situations.
You may find they haven’t been paying all their bills or medical costs might loom that threaten to deplete their savings. Thank goodness you are there for your parents. It will be a trying time for you, but in many cases it would be impossible for them without you.
Preparation makes retirement easier
If your parents took certain steps to prepare for the second stage of retirement, things might not be so difficult.
Specifically, if they understood that a two-stage retirement requires different decisions for the different life stages, their finances will be in much better shape, and they will require less intervention from their children.
The decisions are driven by a basic understanding of aging. When you reach the stage of life that is considered “elderly,” you are more likely to have health problems. And they can be expensive.
In the first stage of retirement, you can expect to be healthy and enjoy your family, traveling and hobbies. In the second stage, you might need an influx of money to cover the costs of illness or care. The extra income can help you to maintain control of your finances – to stay in your house, for example — while you pay those bills.
Benefits of guaranteed income
The income for the second stage of retirement can be provided by a deferred income annuity, or a QLAC, as it’s called when purchased from a rollover IRA.
It makes the most sense to purchase a QLAC from a tax-deferred savings vehicle like a deferred savings annuity or a rollover IRA. You simply select:
- The age you want it to begin paying out, typically 80 or 85, and
- The protection for beneficiaries if you don’t survive to the income-start age.
Then you shop the market to find the highest income (and best financial rating) for the annuity characteristics you selected.
You can spend the income from the deferred income annuity or QLAC on anything, of course, but later in retirement is when medical issues often occur. If you stay healthy, those payments could provide gifts to your kids or an extra vacation for yourself.
There is an additional advantage when you have planned for income provided by a deferred income annuity or QLAC:
You don’t need to rely on a financial advisor to make sure the money continues, and it’s not dependent on the stock market.
Instead, it is fully guaranteed by a highly rated insurance company and will be automatically deposited in your bank account much like your Social Security payments.
If you are a member of the sandwich generation, remember that after you have determined how best to help your parents, you can take steps to make the second stage of retirement easier — for you and for your children.
For more information about how to make a two-stage retirement work for you, watch our new video.