My parents are planning to retire in about 4 years, and I’ve recently found out they don’t have much saved. Their 401(k)s were hit hard in the past due to layoffs and withdrawals, and they now have just around six figures left, give or take after taxes.
I was thinking of putting it all into VTI for the next 4 years to let it grow, but I’m worried about the risks given their short timeline. They’ve never had an investment account outside of their 401(k)s. I want to help them maximize their gains without exposing them to unnecessary risk.
Edit: They plan to wait for full Social Security benefits, and one parent has a pension. Any thoughts on how best to proceed?
If they only have around $100k saved, it’s time for a serious conversation. They’ll need to rely heavily on Social Security and the pension to make this work.
Ali said:
If they only have around $100k saved, it’s time for a serious conversation. They’ll need to rely heavily on Social Security and the pension to make this work.
Or consider moving to a country with a lower cost of living.
By ‘just around six figures,’ do you mean closer to $100k or closer to $900k? If it’s the former, they’re not in a position to retire. If it’s the latter, they’ll still need a solid plan.
Honestly, this isn’t a task you should take on by yourself. They’re adults, and it’s important they take ownership of their finances. You can guide them, but they need to be the ones driving this.
Check out Wade Pfau’s Retirement Planning Guidebook. It’s an excellent resource. It covers topics like asset allocation, sequence of returns risk, and the transition to retirement.
Also, consider using a tool like Boldin (formerly NewRetirement) to help map out a detailed retirement plan. It’s more than just managing their investments—it’s about understanding how they’ll handle withdrawals, taxes, and other retirement needs.
They might be able to roll their 401(k)s into an IRA to avoid a tax hit. The funds would move directly from the 401(k) to the IRA without your parents withdrawing anything. Check with their provider to confirm the process.
With only four years left, they’ll want a balanced approach. Going 100% into equities like VTI might be too risky if there’s a market downturn. A mix of growth and income funds could be safer.
Make sure to talk to them about risk. Watching your retirement savings drop as you approach retirement is terrifying. They might prefer a more conservative approach to protect what they have.
A good financial advisor could help, but be cautious. Some advisors are more interested in their commissions than your parents’ well-being. If you go this route, make sure to vet them carefully.
Instead of taking on this responsibility alone, take them to an investment advisor for an initial consultation. You don’t have to commit to anything, but you can gather professional input.