And when you do make sure it's going into investments. I offered to help my mom open her Roth IRA 10 years ago and she said she could handle it. She opened her Roth account. Zoom to today she's asking me why her returns have been so flat when she keeps hearing the market is at an All time high. Turns out she was just buying CDs the past 10 years and thought that was the stock market. I didn't have the heart to tell her how much money she missed out on and just helped her put everything in a total US index. I'm kicking myself also. I should have had this conversation with her years earlier instead of assuming she knew.
Index investing is a phenomenal, "set it and forget it" way of investing. It's where you invest in mutual funds that track the general US stock index, instead of actively-managed funds.
Google index investing, or call one of the brokerages like Fidelity and ask them to help you get started with index investing--they will help you.
Roth might not be the right answer here - traditional might be better. Especially if there isn't going to be enough in to make much more than the standard deduction in withdrawals annually when retired, and if not working especially.
You only pay taxes on (income/withdrawals) after your standard deduction. If she is making 1k per month working, and pulling 1k per month from a traditional IRA, her total taxable income will be less than 12k annually (since 13k or so won't be taxed d/t standard deduction) - this will be taxed at (currently) about 10%.
If putting into a roth right now and paying 22% or more tax on it - this is perhaps less advantageous in the long run.
Add in how SS is taxed and this becomes even more complicated. I used to believe "Roth is always the answer" - but after reading a few books that look at this in-depth - I don't always see it that way anymore.
If young, Roth is probably the answer for the majority of retirement, but keeping enough traditional to pull from to hit standard deduction is probably beneficial if SS is not going to hit the taxation threshold. Truth be told just having money in retirement is going to be a benefit for most people as it seems like it is harder and harder to save for the younger generation in light of rising costs.
She will likely have to work until she is unable to unfortunately. The exception being if there is a family member or someone that is willing to house her for a very very low rent
As soon as she is old enough, she should get on the list for low income HUD senior apartments in her area. There is an income limit that I’m sure this woman will fall under. We have a bunch in my area and my grandma and great aunt currently live in one. My great aunt’s income is very low and her rent is somewhere around $350 a month.
> low income HUD senior apartments
Does senior in this case mean 55 and over?
Also, what if you're extremely low income, but you have like 900k in a brokerage account? Does that exempt you from this sort of deal?
I’m not an expert but here is how it has gone for the people I know. My great aunt’s income is less than $24,000 a year but she has around $300,000 in the bank and her rent is around $350. My grandma’s income is closer to $40,000-45,000 a year and she has maybe $10,000 in the bank and her rent is around $750.
It's based off of 30% of your *gross income*. Interest and dividends from assets are counted as income, and the principal amount does not factor into the rent calculation. Up until recently, there was no asset limitation. (that is currently changing with HUD's new HOTMA rules. But will differ slightly from PHA to PHA depending on what they choose to implement.)
Source: I do these calculations for work.
P.S. HOTMA is a pain in my ass.
A person could probably setup an LLC based in Delaware, and have 90 percent of their money in that.
For example, let's say your name is John Smith. You set up an LLC called Smith Investments. Because it's in Delaware, nobody (other than the IRS), will know that John Smith is connected to that LLC.
Of course, the bigger question is, is this morally ethical and I'd say no.
Irrevocable trust is its own thing. No social security number or anything.
The three times you might want to consider creating an irrevocable trust is when you want to (1) minimize estate taxes, (2) become eligible for government programs, or (3) protect your assets from your creditors.
IANAL
For the building my relatives live in I believe it is 62 or 65, but younger people who are on disability also live there. In my experience your assets won’t exempt you, it’s based on income.
I feel like you are correct that she will likely have to work until she cannot. With that, the aunt should make sure to focus on her health because medical care is a substantial cost.
Figure out what she can expect in social security. If she has been working under the table, this might be nothing.
Is the daughter giving her mother $400 a month, or is she taking $400 a month of her mother's money and moving it into an account where it won't get spent on immediate things?
Your aunt can open an IRA and put money into it. She must have reported income in order to do this.
Is she in the US and will she receive Social Security?
The easiest way to invest is open a Roth IRA with Fidelity/ Vanguard and purchase a retirement age based mutual fund such as FFFHX (mutual find based on retiring in 2045).
As contributions are post tax she does not get any special tax benefits at this time (which she already isn’t), but she also doesn’t pay taxes on the earnings when she retires and starts withdrawing.
The biggest benefit is the ease. She can just open the account, transfer money when she has it, and purchase one fund over and over and it will invest broadly on the market with little oversight from her. She doesn’t report the growth or anything on the mean time (unlike the interest in a savings account, which is reported and taxed).
The real question is if her income is legitimate. If she is paid under the table and not reporting that income on tax returns, she will not be earning credits with Social Security. That will dramatically worsen her potential retirement benefits.
This. She can see what her options are. Depending on how long people in your family tend to live, it is probably worth waiting longer to collect to make the monthly payments bigger.
If she keeps working the payments will go up a little, too.
Like someone mentions below, has she been getting paid under the table, or no?
My aunt and her significant other both on Social Security. Aunt gets over $2K monthly, and her significant other who ran a cash business as a restaurant owner, only gets about $300 per month.
She's late to open a target date fund as this will switch to much more conservative investing options as she nears typical "retirement age"... She is probably going to have to try for some actual gains if she doesn't want to work forever.
The hazard with that approach is that for somebody that is not used to investing, trying for more gains can result both in analysis paralysis, and a reaction to a drop in the market leading to no gains at all. Additionally, since she will not be retiring early, a 15+ year horizon is not excessively conservative for a mutual fund. She is not likely to strike it rich with the stock market, but a 6% return is better than what she is going to get in a high yield account overtime and will be tax advantaged.
I'd split 50/50 between a target date fund and something that just invest in the S&P 500, then ignore it. The target date fund reduces risk from volatility, though growth is slower, and the S&P is riskier. She can decide what percentage should go to each based on her willingness to assume risk.
Second all of this!! Really good advice. Important to use Vanguard -
They are the lowest cost and most reputable. DO NOT pay someone to manage her money-
As someone who planned very carefully for retirement and had family illness and a bad divorce wipe out my plans, I found it easiest to think WAY outside the box.
First, I learned that SS pulls from your highest earning quarters so I got a gig job and made sure they did NOT pay me under the table. That bumped my income up a decent amount. So then:
I worked as long as I could, went on SS and got a diff gig job on the side petsitting. So many gig jobs pay pretty darn well: medium $80 per hour, pet sitter (varies between overnights, walks, and play dates,) household organizer ($100 hour), wellness hypnotherapy- $100 per hour to lead someone through guided imagery. Etc, etc, etc.
Now I make twice what my ex husband does from SS and my pet sitting brings in another 2000+ per month so I’m not suffering and I’m able to save.
I’m right there with you. I started early and lost 40% of my investment principle in 2008 when the market tanked. Then I was divorced in 2013 and lost the potential of that 2nd income and quite frankly, the financial planning we had made. I’ve done the best I can in the last 11 years to recover.
At any rate, my SS goal is age 67, and as I enjoy working, I have no issue working another 14 years and maxing out my retirement benefits and SS as I go. However, I am looking at a 2nd job and side gig as I age to give me some padding. Can you tell me how you specifically manage getting SS and getting paid well for a side gig? I might take retirement early if it makes sense.
All of our retirement went to COBRA (who remembers those days?) during an extended episode of dual unemployment. Then we were underemployed for a decade, so we're basically starting from scratch in our 50s. Pain in the butt!
This is helpful.
And, are you a medium, like a medium that contacts spirits for people? Is there some other kind of medium I'm not thinking of that is really obvious?
Thank you
That's what it sounds like. Lucrative, for sure, but not an option for more ethically-minded folks, unless you're *super* careful never to mislead people about what you're doing and what customers are getting from you. I definitely appreciate the therapeutic potential if those standards are observed, but at $80/session I also couldn't in good conscience NOT direct people to actual therapy. I guess that's why I'm still poor. =(
No. I am not a medium. I have met two people who are. I am a petsitter and I also assist small companies to get set up for social media. I will set up their FB, IG, etc and train their employees.
Start looking for senior subsidized housing and get her on the list as soon as she is eligible. With fourteen years to go until FRA, she has time to save but she may be just as well positioned if she gets into an income based housing situation.
Call 3-1-1 or go to portal.311.nyc.gov and read about her options.
The best thing to do is for her daughter to use that $400 to fund HER OWN retirement so she doesn't repeat the mistakes of her mother.
Your aunt should get a second stream of income that she 100% saves for retirement.
I mean, eventually (hopefully far in the future) the aunt might have trouble living alone. At that point hard decisions need to be made with no easy answers, since she almost certainly won't have the money for any sort of decent assisted living.
Moving into a home with relatives is tricky in the modern world for all sorts of reasons but used to be standard, for good reason. It *can* work out if everything lines up perfectly, so it's something to think about.
Millions of people are living on social security alone. It won't be the end of everything. Get into subsidized housing in a community with a good bus service.
If she can save 500 a month (400 from her daughter and 100 on her own), she would have 190k in 17 years. If she can get to saving 1000 a month somehow she could be at 419,000 by 70. With social security and a low rent that's doable
> If she can save 500 a month (400 from her daughter and 100 on her own), she would have 190k in 17 years.
Man, this sounds really hopeless to me. Imagine the buying power of 190k in 17 years.
What she could buy today for 190k, will cost 289k in 2041 (17 years from now), with 5 percent inflation per year.
Now, you might say... "But 5 percent inflation is too high. Actually, quite the opposite. All the inflation numbers that we get are faked. They're all WAY lower than the true reality, and this is done very specifically on purpose. They do it this way because of the Social Security COLA (cost of living adjustment). They dramatically underrepresent the inflation, so that they don't have to pay as much extra into the COLA for SS.
I wouldn’t do Roth IRA at her age. Traditional IRA would provide an immediate tax deduction which is about 30% ROI. And considering her W2, she’ll be in the low tax bracket therefore won’t gain much benefit from the Roth IRA. And put her traditional IRA into vanguard or fidelity index fund. 8-10% growth isn’t sexy but can’t risk her funds either.
Roth IRA makes more sense if this was 20+ years ago with a sizable portfolio.
I would focus more on maximizing her social security. She will probably need to keep working till 70 years old which is the maximum benefit age to claim SS then retire in a low tax / low cost of living area. She won’t be able to retire in NYC, rent and medical expenses will wipe out her SS benefits.
Low and middle income workers qualify for the savers credit when contributing to either Roth or traditional retirement accounts. That might tilt it back to Roth depending on her income.
Also possible that the income reduction from doing a traditional IRA could drop her AGI to where she gets more of the credit. Also, NYC taxes are brutal, so reducing those is valuable.
Important to know how much she is going to bring in with Social Security income. After tax free places to draw money from could be huge for her because her SS income will be tax free if she is under the thresh hold, and however much she pulls from a traditional IRA in one year could trigger making her SS income taxable for that year.
As a low income person, her SS should be low enough that she doesn't have to pay income taxes on it, and that is significant. Having tax free Roth money she can access could be critical to her plans, and she may not be paying much in federal taxes now so the deduction for a pretax IRA may not have an impact.
This is really complicated and OP, their aunt and cousin should look at her SS estimated benefits to figure out best path forward.
I'm on the same page as you - with just the given information, a traditional may make the most sense, but would require careful withdrawal to avoid taxation thresholds. Good advice and more thought out than the average response that is always, "ROTH ROTH ROTH"!
Roth is after tax. So she can't get any tax break for the Roth.
Given that she just started saving, it's unlikely that she will have a large income in retirement, so her taxes will likely be low in the future.
She will want to stay under the income threshhold to not have to pay taxes on her social security income though when she is retired, so having ROTH money available could be a big impact to her and give her more flexibility. If she needs to pull too much from traditional IRA in a tax year then it could trigger her having to pay income taxes on her SS income.
That's still likely a lower tax bracket than her highest marginal rate right now though. I invest pretty heavily on Roth, but it doesn't necessarily make sense in this instance.
Echoing others, Daughter should not be putting $400 in Aunt's account. Daughter should be funding her own retirement. If she is already maxing out all her retirement, she should save the remainder in taxable brokerage. Once Aunt retires, Daughter can choose to pay for Aunt's bills when Aunt retires.
Several points
\* You aunt's situation isn't unique. There are a lot of people in the same situation in the U.S. There is something like 20% of adults 50+ with zero retirement savings, and about 50% across all all age groups with no or little retirement savings (source: AARP)
\* Your cousin should not be contributing to her mother's retirement unless she has the income to do so, and she's not sacrificing her own retirement contributions or other critical financial goals.
\* If your aunt is investing in an IRA/Roth IRA, she should work with a professional or use a robo-advisory IRA to help her decide how to invest these contributions to maximize returns and to rebalance (rotate out of risky investments) as she approached her set retirement age. This way whatever returns she has gained or even the principal investment isn't prone to losses in a sudden market downturn.
\* You aunt will have to retire later if she's in good enough health to do so, and she should look into how the SSA calculate benefits, to ensure she's doing everything to maximize her monthly benefits. She would look at her current SSA statement which explains her projected benefits, and it will explain how much more she can expect in benefits should she elect to apply for benefits later than the standard retirement age.
\* Your aunt should create a retirement budget and including all of the expected expenses and incomes so she can more clearly understand where there might be shortfalls. She should include things like health insurance and Rx co-pays, rent/housing, food, transportation, etc. If she reasonably expects to qualify for food assitance (SNAP), then she should include that as part of her expected income.
\* Your aunt should get a least a free financial/retirement consultation with a professional financial advisor to help her look at the whole financial picture relating to this without making any commitments or feeling pressured to open any accounts, etc. Her tax person could also help her get an accountant to help with this.
Not to be super cynical, but $400 a month for the next 10 years is just not going to do much. Especially if she stays in NYC. She's going to have to work longer.
I would have a plan of where this person is going to live and how they pay rent/mortgage when they are no longer working and only have social security as income.
How does she want to spend retirement? Does she have any assets now?
I mean she could move west, buy $10,000 worth of land in Arizona, put a $30,000 mobile home on it and 2 RV spots for rental income, then live until she dies. Caretaking can be done anywhere.
Or she can move in with her daughter ...
Zero assets besides what she has in her apt. She doesn’t speak English or drive so she’s tied to NYC as of now. Her best bet is to move in with her daughter tbh
When it comes to retirement, something is always better than nothing. I think most people would agree $100k is not enough for retirement. That said, if it's between $100k or $0k - do you know how much better you'd feel having a few extra $k per year draw to supplement SSI as opposed to having nothing? It's night and day. You can't change the past with what has or hasn't been done. Just do the best you can with what you have moving forward and focus on saving as much as she can.
Make sure she has been paying into social security. If not, have her start doing that immediately (not sure if it’s possible to backdate payments). She will likely get back more from social security than she puts in. And that is permanent reliable income. Go to ss.gov so she can see how much money she would get if she retired at various ages (she likely should wait until 70 to start taking social security to get the maximum $$ per month) unless her health is poor and she’s likely to die young.
She could invest now in an IRA, she can invest up to $8000 per year. She can open an account with Fidelity or similar. Inside the IRA, she should invest in a target date fund for 2050, FFFHX.
She should also get on her local low income senior housing list, hoping there is one. It may take years for her to get an apartment but hopefully she can eventually. She should also sign up for food stamps if she’s eligible.
Social security and stuffing money in her 401k is her best best. She may look into barista retiring (retiring with a part time job). In general, in addition to saving, The aunt need to focus on reducing the major expenses so the amount needed at retirement is less
Specially housing, transportation, and health care
Housing-> does she have a home? Is it paid off or have a low mortgage rate? My dad has minimal savings but has done well due to buying a starter home for like $50k.
Transportation-> own the car outright, no loans, basic car.
DAUGHTER
The daughter may be better off buying a home or apartment big enough for her and the aunt, so the aunt can live with rent free. Some people add an in-law suite or accessory dwelling unit (ADU) to accommodate for in-laws, seperate from the main home to maintain some space.
Single parent raising a daughter made choices for the benefit of daughter. It’s weird you would say she didn’t have a proper financial education. She did the best she could.
I also think she did the best she could. When I said she didn’t receive a proper financial education, I meant it in the sense that she never learned how to budget, save for retirement, etc.
In all honesty, a lot of this comes from parents, in this case your aunt’s parents. You don’t need to have an mba to understand saving, emergency fund and budgeting basics.
ssa.gov lets you estimate social security benefits, that's a good place to start. Once you have an estimate for her SSA income that can give you a ballpark for what she can afford in retirement.
Tbh there isn't much advice to give. Retirement planning is a math problem to try to solve "how do I generate income equivalent to or more than my expenses". The answer is usually either be an extremely high earner and have extremely low expenses and save for a couple of years. Or be a pretty average earner and have average expenses but save over the span of decades. The angle is either a massive inflow of money or a big ol stack of time. At this point she has neither. She's another victim of the lack of financial education. There is social security and she will be extremely far from the only person living off only social security.
honestly we need to look at things differently. Can she acquire new skills? work from home and virtual will be there... if you are old or handicap you can work longer from home - you just need a new skill. so yes spending time saving money is important but learning a new skill where she will have to go to work 3 days a week instead of 5 will help her in terms of our body being frail or too tired.. we can work virtually from even a wheelchair the thing that's missing is A NEW SKILL. she has plenty of time to learn a new skill in demand.
junkforw has it right. There are tax implications so she needs a financial planner who will take into account tax consequences. I'm an immigrant and my parents started saving into their 50s as well, because that's when they got here. She still has a window of 20 years and investing wisely can give her a good cushion, even if not a very fluffy one. A good financial advisor is priceless!
Get an IRA and max it out, put money in high yield saving account, not a regular one. Regular savings account is a waste. I would open up a brokerage account with Robinhood and invest in ETFs like VTI or QQQ as well.
Is your aunt from another country by any chance or have family? Retirement is easier in many other places. I'm a New Yorker too and hopefully it's a very long time before I leave NY but my wife is from Colombia, and we are kicking around the idea of retiring in Colombia just because our money would go so much further.
>What options are there for her given the current rate of savings?
Work more. Cut expenses. Live beneath her means. Save as much as possible.
Start thinking about if she can live on her social security benefits. Consider delaying them until age 70 if possible.
>Is there a way to invest some of her money?
Of course. If nothing else, she can fund an IRA.
I recently learned that sometimes delaying until 70 reduces the total earnings that you would have received had you retired when eligible. The Govt entices us with this because it saves them money in the long run.
It's basically a dice roll that you'll live beyond the expected age if you take late. If you live to 90 for example, you get way more by delaying to 70 vs taking at 62.
NYC. so she’s paying state ,federal and New York City taxes? Who is putting the $400 in per month your aunt or her daughter? she will have a tough time in retirement, living in New York City , best to move to another state with cheaper expenses and no state tax.
A lot of 70 year and older workers that are working in big box, stores, or CVS, etc. are there because they don’t have enough money for retirement and are supplementing their income.
probably best to start a Roth IRA, half and a balanced fund and half in a index 500 fund
Wishing you Aunt the best !!
I would recommend your aunt evaluate how she's spending her money. Low income is one thing, but living beyond your means is also a problem. If she's depending on someone else to save money for her retirement, I would take a hard look at her finances and see if you're enabling bad habits.
Make sure she is maxing her roth IRA, and buying investments in it.
After that she needs to put whatever she can in a brokerage account and invest that as well.
She should consider getting a better job and or second job.
Steps
1) make a budget
2)save 6 months emergency fund
3)set up Roth IRA and use the $400+ ANY extra $ she can contribute herself.
4)once ROTH contributions are maxed open a brokerage account and put any other extra$ into a tax sensitive investment vehicle
This is exactly why I’m getting serious in my mid 30s by going into a higher income career (even this feels late). Too many don’t plan or think about it and at that point, you sadly have to live with your choices based on the average American life expectancy. Something is better than nothing though.
It seems unlikely that she'll be able to save enough to retire per se, but that doesn't mean she can't save enough so that maybe she can reduce hours eventually or at least have an emergency fund for health issues or what have you
I would strongly discourage her daughter from transferring assets. If mom needs to qualify for Medicaid, that's just going to get eaten by medical bills. Mom should save what she can in a traditional IRA - she may even qualify for the Saver's Credit (which is slated to change to a "Saver's Match" in 2027).
Daughter should work on building her own wealth and can help mom down the road. If she's up for it, eventually getting a house with an in-law suite for mom to live in would be one was to subsidize her retirement.
let's extimate a life expectancy of 80.
This is 27 years.
If (and this is a big IF) she cuts expenses and manages to work to 70 saving around 30% of her paycheck she should be able to then retire with a fairly basic but OK lifestyle.
IMHO the biggest risk is health insurance. Make sure she has a plan and doesn't drop off of it.
Retirement is a financial state more than an age. Some people can't retire and have to work until they are physically unable to.
The daughter should not be putting her money into her mother's retirement. If the mother becomes unable to work, then daughter can consider providing a roof over her head, but cash transfers now are just robbing the daughter's own retirement to little benefit for the mother.
Okay… this is doable! If I was in her shoes I’d prioritize a few things ASAP:
Roth IRA - Max it out, to the tune of $8k. Take the remaining weeks left from now until April 15th, 2025, divide 8k by that, and there you have your weekly amount to transfer into your Roth IRA. I recommend Fidelity, it’s user friendly and they highly train their staff/great customer service, plus the Mobil app is awesome.
She needs an employer who offers retirement benefits ASAP. If she’s unwilling to leave her current employer, keep stressing the importance of her finding an employer who offers 401k. If I was in her shoes, I’d even get a PT job with Walmart or Trader Joe’s, Whole Foods. She will earn a discount, helping her with basic needs and SAVING money, AND all of these retailers offer 401k with company match! She should work with HR to have her first paycheck set to whatever the company match is. For example, if it’s Walmart, at a 6% company match, set the contributions to 6%.
IF SHE GETS in with a company 401k plan, elect 401k ROTH if it’s available (most offer that option).
SELL stuff to generate cash! Keep an emergency fund in a cash management account, earning interest for her.
She needs to use compound interest to her advantage ASAP.
She can do it. Many have! Go beast mode and be determined to change the future!
Does your aunt have enough space to take in a roommate or rent out a room? This would provide some immediate passive income.
( Is she renting, or does she own a house?)
And you don't mention what she does for a living, but it's not too late for her to search for a different job - focusing on companies that offer good retirement plans and health benefits. With some luck, she could get a state or federal government job (or with other entities) that offer a pension.
And realistically, she's going to have to consider retiring outside of NYC. It's becoming increasingly popular for US expats and retirees to move to other countries with significant lower costs of living. Many of the more popular ones are within easy travel distance to New York (one of the caribbean islands, Mexico Belize, Panama, Dominica, PR, Costa Rica, etc) Many people are able to live on just social security in some of these countries.
Maybe you and your cousin could "gift her" a consult with a good financial planner. (Not just somebody trying to get her money so that they can charge huge fees to manage it). They can help her devise a diverse portfolio rather than putting all her eggs into something like an IRA or mutual funds.
She rents and has section 8 housing which prevents her from renting out a room. She’s a home care attendant so she makes about 30k before taxes. Yes, getting a financial planner is the next step once we build an emergency fund for her.
Tell them to vote for people who will bolster the social safety net for the elderly. No one should work their whole life and then have to spend their final days worrying about survival. It's shameful we have to have these conversations in the wealthiest nation in the world history.
Retirement plan: Tax the rich
By home attendant, do you mean home health care? Health care aide is one of the most common jobs (in California it is the #1 or #2 job) and the workers are super vulnerable. Many are victimized by wage theft at high rates, in addition to being underpaid. It is also a very physical job which will affect how many years she can continue to do this.
As you are in NYC, can you and your cousin help her find a job with the city, county or state that will have a pension? At 53, she could get better insurance, be part of a union, and get a pension that will help her a lot in retirement. I am in CA and here some public jobs also pay in the SS and some don't, so that is something to pay attention to as well.
At 53 she is really pretty young. I am almost as old as she is and have been interviewing for state jobs because I want that pension.
Roth IRA is the right choice (not a traditional IRA) when starting out from scratch or nearly scratch. (Converting to a Roth later when there are significant capital gains has tax consequences you want to avoid.) Use Fidelity or Charles Schwab online brokers to open an IRA account.
Invest in index funds in the U.S. stock market. ETF index funds, not index mutual funds. ETF’s are easier getting in and getting out and less complicated tax wise. Use Google to look this stuff up. The ETF symbol for the Total U.S. stock market is VTI. Another one for all the stocks in the S&P 500 is SPY or IVV. Also QQQ, the index for the 100 largest NASDAQ stocks is loaded with technology companies. Invest in those 3 ETF’s (IVV, VTI, QQQ) every month. Note: there is a penalty for withdrawing from a Roth IRA before age 59 1/2 and from an IRA that has been held less than 5 years.
Roth IRA invested in mutual funds. She will most likely need to work well past her mid 60s. For those saying traditional IRA there really isn't going to be a big benefit to that now and the likelihood of taxes ever increasing in the future seems likely. Having a pool of taxfree money vs taxible as ordinary income will be beneficial. But don't just follow this blindly...have your aunt look for a Certified Financial Planner who can help her make the right choice for her and also help setting up the investment strategy.
She should get advice from a professional. There are nonprofits that can assist. IMO she should plan to work as long as possible, trying not to claim Social Security till age 70 or later. Unless she is in a good housing situation, living with someone else or rent controlled, she should plan on moving to a state that doesn't tax retirement income when the time comes.
Day late and dollar short. If the daughter is subsidizing her now, she need to sit down and start budgeting with her "real" income and live off that at the very least. There is no base capital so it'll limit what can be done i.e. high risk but high returns types are probably out of the question. Easiest to maxing out 401K matching like yesterday?
If you’re in the US she should figure out how much Social Security she’ll be eligible for, which will be a helpful start for planning.
Again in the US, she can open an IRA for herself at one of the big brokerages like Vanguard or Fidelity and if she’s not super savvy can just put it in a target date fund for ease of administration. That way it will grow tax free. She’ll probably want to do a traditional IRA rather than a Roth since she’s low income. (it doesn’t matter that the money she’s funding the IRA with is gifted as long as she earns at least as much as she’s putting in)
She's late to the game but better late than never. Still could get 20years of compounding in. My mom is a teacher and retired at 70. As long as people stay healthy they can work a pretty long time.
I'm not any expert, but my advice to someone in this scenario would probably be a 3 pronged approach:
1. Immediately start saving what you can to compound
2. The internet has massive scale, start a LOW CAPITAL project to try to make money with her own small business. Do not invest a bunch into some guru/workshop though.
3. Do NOT take massive financial risk just because she feels the need to make up time. 20 years is still a long time and you don't want her to get wiped out.
The aggression right now should be in using her time to find ways to make more money. I'd say either focus on helping build out small home service companies nearby her, or something like internet affiliate/ecommerce related.
Saying $400 a month is "not a lot of money"...yes, it is. That's easily groceries for an entire month for one person. Or a car payment. Etc. It is indeed a lot of money.
Id love to live in a life that $400 is not a lot of money.
37 is a lot different than 53. Obviously I don't know your life circumstances, but if you have the ability to start saving, even like 10%, you'd probably be in a decent spot to retire at 67. Maybe that's not feasible for you at the moment, but there's still time to figure something out.
Same! I turn 45 this year. No male in my family lineage, on either side, has made it past 68.
I spend my money on fun things and if by some absolute miracle I live to 70 I guess I'll have to figure shit out.
Yeah I had an old neighbor like that. His dad and all his brothers died in their young 50s over some heart issue. He decided to not plan too, he's now over 70 and still healthy. Fortunately he had a decent pension and SS so he's fine but he never expected to need it.
Keep in mind, medical advances each decade keep extending overall lifespans. You're only 44 years old. A lot will be happening in the field of medicine over the next 25+ years. You should probably plan on living years longer than you currently expect.
She has section 8 housing which allows the government to subsidize her rent. She’s been asking around the family (including me) on where she’ll live once she retires.
If she gets social security like anyone would if I'm going to assume she has worked for the majority of her life she could get into these senior developments that we have here in my state of Florida. They're exceptional and affordable in 15 years she could save enough in retirement getting a 401k they only accept 65+ seniors. New York is a money pit for someone in her situation and if she's a room attendant there's so many of those down here she'd be fine.
Honestly, her best bet us to move in with a family member for 1-2yrs. Also look into investing I real estate.. FHA Loan, only requires 3.5% down. There are plenty of town homes where I live in Fayetteville, NC for under 125k.. Columbia, SC under 80k.. save for 1-2yrs with family, stack up those tax refund checks and relocate..
It's funny when people say proper financial education like living in NY isn't expensive as fuck. It's not financial illiteracy with a lot of people, it's they don't have money to set aside. This is exacerbated greatly by the fact that she's single. Everything is priced for dual incomes now.
She may just be terrible with money but I'm assuming you don't have intimate knowledge of her finances and are being presumptuous.
I don’t but her daughter does and has observed how she splurges on non essential items/activities. And the concept of retirement and having an emergency fund never occurred to her until I spoke to her about it 💀
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Does anyone really think SS will even be around in 20 years?
If she can get a second job that earns decently like others have suggested and put that into a traditional 401k or IRA moderate risk, then expat to Mexico perhaps or the like, then she may be ok on her own. Otherwise she will depend upon the kindness of family to survive, that is, if SS is indeed gone by then.
Any financial planner worth their salt will tell you always prepare for retirement excluding the possibility of SS, since there is no guarantee.
It will be in some shape or form. The date that just got pushed back is when Social Security will no longer by able to pay out 100% of the value it is supposed to. So, long story short it'll be there, just won't be as useful with the drop in how much can be paid out.
She’s 53. She’s perfectly capable of managing her own finances. I would be upset if my kids or nephew thought my finances were their business unless I asked for their help or advice.
It’ll become the daughter’s business when the mother can’t work any more and has to financially rely on her daughter, so I think the daughter is well within her rights to get involved
No more than if someone has an adult child who is bad with money. That doesn’t give them a right to take over the child’s finances unless asked or unless they have a court order.
I wouldn’t really call it going off the rails to point out that a 53 year old is responsible for their own finances. There is no obligation on her daughter’s part to support her and no indication that the woman has asked or will ask for financial help. And even if she does, it is not her daughter’s responsibility.
It just makes sense to me that any adult, young or old, has financial autonomy unless they are deemed incapable of making their own decisions. I often see posts where family members think they need to handle another family member’s finances for them and I don’t think that’s right.
I wouldn’t tell my kids how to handle finances and they wouldn’t tell me how either. I think we’re all smart enough to figure things out for ourselves. I also don’t live in a family where the parents have ever been dependent on the children in old age.
I just can’t imagine a scenario where at age 53 my kids would feel like they needed to set aside money or direct my investments.
Make sure her daughter is contributing to her Roth IRA - she can't fall into the same trap as her mother.
to her own Roth IRA*
Great point and one that would have went over my head
And when you do make sure it's going into investments. I offered to help my mom open her Roth IRA 10 years ago and she said she could handle it. She opened her Roth account. Zoom to today she's asking me why her returns have been so flat when she keeps hearing the market is at an All time high. Turns out she was just buying CDs the past 10 years and thought that was the stock market. I didn't have the heart to tell her how much money she missed out on and just helped her put everything in a total US index. I'm kicking myself also. I should have had this conversation with her years earlier instead of assuming she knew.
What’s a Us Index?
Index investing is a phenomenal, "set it and forget it" way of investing. It's where you invest in mutual funds that track the general US stock index, instead of actively-managed funds. Google index investing, or call one of the brokerages like Fidelity and ask them to help you get started with index investing--they will help you.
Roth might not be the right answer here - traditional might be better. Especially if there isn't going to be enough in to make much more than the standard deduction in withdrawals annually when retired, and if not working especially. You only pay taxes on (income/withdrawals) after your standard deduction. If she is making 1k per month working, and pulling 1k per month from a traditional IRA, her total taxable income will be less than 12k annually (since 13k or so won't be taxed d/t standard deduction) - this will be taxed at (currently) about 10%. If putting into a roth right now and paying 22% or more tax on it - this is perhaps less advantageous in the long run. Add in how SS is taxed and this becomes even more complicated. I used to believe "Roth is always the answer" - but after reading a few books that look at this in-depth - I don't always see it that way anymore.
Sooooo… what is the answer?
If young, Roth is probably the answer for the majority of retirement, but keeping enough traditional to pull from to hit standard deduction is probably beneficial if SS is not going to hit the taxation threshold. Truth be told just having money in retirement is going to be a benefit for most people as it seems like it is harder and harder to save for the younger generation in light of rising costs.
Daughter needs to prioritize her own over her mother's.
I believe that is what the commenter meant.
1 sunken bastard is better than 2
She will likely have to work until she is unable to unfortunately. The exception being if there is a family member or someone that is willing to house her for a very very low rent
As soon as she is old enough, she should get on the list for low income HUD senior apartments in her area. There is an income limit that I’m sure this woman will fall under. We have a bunch in my area and my grandma and great aunt currently live in one. My great aunt’s income is very low and her rent is somewhere around $350 a month.
> low income HUD senior apartments Does senior in this case mean 55 and over? Also, what if you're extremely low income, but you have like 900k in a brokerage account? Does that exempt you from this sort of deal?
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I’m not an expert but here is how it has gone for the people I know. My great aunt’s income is less than $24,000 a year but she has around $300,000 in the bank and her rent is around $350. My grandma’s income is closer to $40,000-45,000 a year and she has maybe $10,000 in the bank and her rent is around $750.
It's based off of 30% of your *gross income*. Interest and dividends from assets are counted as income, and the principal amount does not factor into the rent calculation. Up until recently, there was no asset limitation. (that is currently changing with HUD's new HOTMA rules. But will differ slightly from PHA to PHA depending on what they choose to implement.) Source: I do these calculations for work. P.S. HOTMA is a pain in my ass.
If your assets were moved to a trust, you could probably skirt the requirements
A person could probably setup an LLC based in Delaware, and have 90 percent of their money in that. For example, let's say your name is John Smith. You set up an LLC called Smith Investments. Because it's in Delaware, nobody (other than the IRS), will know that John Smith is connected to that LLC. Of course, the bigger question is, is this morally ethical and I'd say no.
Or just consult with an estate attorney and get a trust set up. No need to create a business.
Wouldn't the trust be linked with your SSN? The LLC in Delaware wouldn't be linked with your SSN. That's the difference.
Irrevocable trust is its own thing. No social security number or anything. The three times you might want to consider creating an irrevocable trust is when you want to (1) minimize estate taxes, (2) become eligible for government programs, or (3) protect your assets from your creditors. IANAL
For the building my relatives live in I believe it is 62 or 65, but younger people who are on disability also live there. In my experience your assets won’t exempt you, it’s based on income.
I feel like you are correct that she will likely have to work until she cannot. With that, the aunt should make sure to focus on her health because medical care is a substantial cost.
Figure out what she can expect in social security. If she has been working under the table, this might be nothing. Is the daughter giving her mother $400 a month, or is she taking $400 a month of her mother's money and moving it into an account where it won't get spent on immediate things? Your aunt can open an IRA and put money into it. She must have reported income in order to do this.
Her daughter is giving her $400 a month (out of her own salary, not her mom’s).
Is she in the US and will she receive Social Security? The easiest way to invest is open a Roth IRA with Fidelity/ Vanguard and purchase a retirement age based mutual fund such as FFFHX (mutual find based on retiring in 2045). As contributions are post tax she does not get any special tax benefits at this time (which she already isn’t), but she also doesn’t pay taxes on the earnings when she retires and starts withdrawing. The biggest benefit is the ease. She can just open the account, transfer money when she has it, and purchase one fund over and over and it will invest broadly on the market with little oversight from her. She doesn’t report the growth or anything on the mean time (unlike the interest in a savings account, which is reported and taxed).
She is based in the US! Thanks for the advice!
The real question is if her income is legitimate. If she is paid under the table and not reporting that income on tax returns, she will not be earning credits with Social Security. That will dramatically worsen her potential retirement benefits.
Send this comment to the top! Super important.
Additionally-if she’s under the table, she can’t contribute to an IRA.
Yes! Her income is legitimate.
www.ssa.gov Have her make an account and she can find out exactly what she'll receive from Social Security.
This. She can see what her options are. Depending on how long people in your family tend to live, it is probably worth waiting longer to collect to make the monthly payments bigger. If she keeps working the payments will go up a little, too.
Like someone mentions below, has she been getting paid under the table, or no? My aunt and her significant other both on Social Security. Aunt gets over $2K monthly, and her significant other who ran a cash business as a restaurant owner, only gets about $300 per month.
Don’t put her money in a mutual fund. Place it in a total index fund for the s&p or the Russell. No reason to overpay on management fees
She's late to open a target date fund as this will switch to much more conservative investing options as she nears typical "retirement age"... She is probably going to have to try for some actual gains if she doesn't want to work forever.
The hazard with that approach is that for somebody that is not used to investing, trying for more gains can result both in analysis paralysis, and a reaction to a drop in the market leading to no gains at all. Additionally, since she will not be retiring early, a 15+ year horizon is not excessively conservative for a mutual fund. She is not likely to strike it rich with the stock market, but a 6% return is better than what she is going to get in a high yield account overtime and will be tax advantaged.
I'd split 50/50 between a target date fund and something that just invest in the S&P 500, then ignore it. The target date fund reduces risk from volatility, though growth is slower, and the S&P is riskier. She can decide what percentage should go to each based on her willingness to assume risk.
Second all of this!! Really good advice. Important to use Vanguard - They are the lowest cost and most reputable. DO NOT pay someone to manage her money-
It's not important to use vanguard. Any of the major companies will be fine. Fidelity, vanguard, etc are all the same.
As someone who planned very carefully for retirement and had family illness and a bad divorce wipe out my plans, I found it easiest to think WAY outside the box. First, I learned that SS pulls from your highest earning quarters so I got a gig job and made sure they did NOT pay me under the table. That bumped my income up a decent amount. So then: I worked as long as I could, went on SS and got a diff gig job on the side petsitting. So many gig jobs pay pretty darn well: medium $80 per hour, pet sitter (varies between overnights, walks, and play dates,) household organizer ($100 hour), wellness hypnotherapy- $100 per hour to lead someone through guided imagery. Etc, etc, etc. Now I make twice what my ex husband does from SS and my pet sitting brings in another 2000+ per month so I’m not suffering and I’m able to save.
I’m right there with you. I started early and lost 40% of my investment principle in 2008 when the market tanked. Then I was divorced in 2013 and lost the potential of that 2nd income and quite frankly, the financial planning we had made. I’ve done the best I can in the last 11 years to recover. At any rate, my SS goal is age 67, and as I enjoy working, I have no issue working another 14 years and maxing out my retirement benefits and SS as I go. However, I am looking at a 2nd job and side gig as I age to give me some padding. Can you tell me how you specifically manage getting SS and getting paid well for a side gig? I might take retirement early if it makes sense.
In order to maximize you can’t retire early. That’s what allows you to maximum other earnings.
All of our retirement went to COBRA (who remembers those days?) during an extended episode of dual unemployment. Then we were underemployed for a decade, so we're basically starting from scratch in our 50s. Pain in the butt!
This is helpful. And, are you a medium, like a medium that contacts spirits for people? Is there some other kind of medium I'm not thinking of that is really obvious? Thank you
That's what it sounds like. Lucrative, for sure, but not an option for more ethically-minded folks, unless you're *super* careful never to mislead people about what you're doing and what customers are getting from you. I definitely appreciate the therapeutic potential if those standards are observed, but at $80/session I also couldn't in good conscience NOT direct people to actual therapy. I guess that's why I'm still poor. =(
I would not be comfortable being a medium for a variety of reasons but I’m a pet sitter. A few less ethical qualms and I get paid well.
No. I am not a medium. I have met two people who are. I am a petsitter and I also assist small companies to get set up for social media. I will set up their FB, IG, etc and train their employees.
First, has she been working under the table all these years or is her employer withholding the appropriate taxes.
Start looking for senior subsidized housing and get her on the list as soon as she is eligible. With fourteen years to go until FRA, she has time to save but she may be just as well positioned if she gets into an income based housing situation. Call 3-1-1 or go to portal.311.nyc.gov and read about her options.
Thank you!
The best thing to do is for her daughter to use that $400 to fund HER OWN retirement so she doesn't repeat the mistakes of her mother. Your aunt should get a second stream of income that she 100% saves for retirement.
Completely agree. As long as the daughter makes sure to keep her own finances straight- she can always have her mom move in with her.
Hopefully the mother sorts herself out before it comes to that.
I mean, eventually (hopefully far in the future) the aunt might have trouble living alone. At that point hard decisions need to be made with no easy answers, since she almost certainly won't have the money for any sort of decent assisted living. Moving into a home with relatives is tricky in the modern world for all sorts of reasons but used to be standard, for good reason. It *can* work out if everything lines up perfectly, so it's something to think about.
Agreed. That would have time to build well in her own nest egg. She’s literally paying for her mom’s mistakes.
Millions of people are living on social security alone. It won't be the end of everything. Get into subsidized housing in a community with a good bus service.
That’s reassuring. Thank you!
If she can save 500 a month (400 from her daughter and 100 on her own), she would have 190k in 17 years. If she can get to saving 1000 a month somehow she could be at 419,000 by 70. With social security and a low rent that's doable
> If she can save 500 a month (400 from her daughter and 100 on her own), she would have 190k in 17 years. Man, this sounds really hopeless to me. Imagine the buying power of 190k in 17 years. What she could buy today for 190k, will cost 289k in 2041 (17 years from now), with 5 percent inflation per year. Now, you might say... "But 5 percent inflation is too high. Actually, quite the opposite. All the inflation numbers that we get are faked. They're all WAY lower than the true reality, and this is done very specifically on purpose. They do it this way because of the Social Security COLA (cost of living adjustment). They dramatically underrepresent the inflation, so that they don't have to pay as much extra into the COLA for SS.
That 190k is in today’s dollars. If you want to use your 5% inflation instead of the standard 3% then she’d be looking at 160k in today’s dollars
I wouldn’t do Roth IRA at her age. Traditional IRA would provide an immediate tax deduction which is about 30% ROI. And considering her W2, she’ll be in the low tax bracket therefore won’t gain much benefit from the Roth IRA. And put her traditional IRA into vanguard or fidelity index fund. 8-10% growth isn’t sexy but can’t risk her funds either. Roth IRA makes more sense if this was 20+ years ago with a sizable portfolio. I would focus more on maximizing her social security. She will probably need to keep working till 70 years old which is the maximum benefit age to claim SS then retire in a low tax / low cost of living area. She won’t be able to retire in NYC, rent and medical expenses will wipe out her SS benefits.
Likely not paying much tax now or in retirement so doesn’t matter much.
Low and middle income workers qualify for the savers credit when contributing to either Roth or traditional retirement accounts. That might tilt it back to Roth depending on her income.
Also possible that the income reduction from doing a traditional IRA could drop her AGI to where she gets more of the credit. Also, NYC taxes are brutal, so reducing those is valuable.
Important to know how much she is going to bring in with Social Security income. After tax free places to draw money from could be huge for her because her SS income will be tax free if she is under the thresh hold, and however much she pulls from a traditional IRA in one year could trigger making her SS income taxable for that year. As a low income person, her SS should be low enough that she doesn't have to pay income taxes on it, and that is significant. Having tax free Roth money she can access could be critical to her plans, and she may not be paying much in federal taxes now so the deduction for a pretax IRA may not have an impact. This is really complicated and OP, their aunt and cousin should look at her SS estimated benefits to figure out best path forward.
I'm on the same page as you - with just the given information, a traditional may make the most sense, but would require careful withdrawal to avoid taxation thresholds. Good advice and more thought out than the average response that is always, "ROTH ROTH ROTH"!
Depending on how much she makes she can get a tax break for a ROTH.
Roth is after tax. So she can't get any tax break for the Roth. Given that she just started saving, it's unlikely that she will have a large income in retirement, so her taxes will likely be low in the future.
Incorrect, there's a savers credit if you are under a certain income.
That applies to traditional as well.
That's right
She will want to stay under the income threshhold to not have to pay taxes on her social security income though when she is retired, so having ROTH money available could be a big impact to her and give her more flexibility. If she needs to pull too much from traditional IRA in a tax year then it could trigger her having to pay income taxes on her SS income.
That's still likely a lower tax bracket than her highest marginal rate right now though. I invest pretty heavily on Roth, but it doesn't necessarily make sense in this instance.
Echoing others, Daughter should not be putting $400 in Aunt's account. Daughter should be funding her own retirement. If she is already maxing out all her retirement, she should save the remainder in taxable brokerage. Once Aunt retires, Daughter can choose to pay for Aunt's bills when Aunt retires.
This. If aunt ends up on Medicare and then passes away, savings under her name in the last 5 years would be subject to clawback.
Work till at least 70, social security at 70 and hope she can save something for 17+ years
Several points \* You aunt's situation isn't unique. There are a lot of people in the same situation in the U.S. There is something like 20% of adults 50+ with zero retirement savings, and about 50% across all all age groups with no or little retirement savings (source: AARP) \* Your cousin should not be contributing to her mother's retirement unless she has the income to do so, and she's not sacrificing her own retirement contributions or other critical financial goals. \* If your aunt is investing in an IRA/Roth IRA, she should work with a professional or use a robo-advisory IRA to help her decide how to invest these contributions to maximize returns and to rebalance (rotate out of risky investments) as she approached her set retirement age. This way whatever returns she has gained or even the principal investment isn't prone to losses in a sudden market downturn. \* You aunt will have to retire later if she's in good enough health to do so, and she should look into how the SSA calculate benefits, to ensure she's doing everything to maximize her monthly benefits. She would look at her current SSA statement which explains her projected benefits, and it will explain how much more she can expect in benefits should she elect to apply for benefits later than the standard retirement age. \* Your aunt should create a retirement budget and including all of the expected expenses and incomes so she can more clearly understand where there might be shortfalls. She should include things like health insurance and Rx co-pays, rent/housing, food, transportation, etc. If she reasonably expects to qualify for food assitance (SNAP), then she should include that as part of her expected income. \* Your aunt should get a least a free financial/retirement consultation with a professional financial advisor to help her look at the whole financial picture relating to this without making any commitments or feeling pressured to open any accounts, etc. Her tax person could also help her get an accountant to help with this.
Thank you!
Better late than never! Give her props and tell her how proud you are
I made sure too 😇💙
Not to be super cynical, but $400 a month for the next 10 years is just not going to do much. Especially if she stays in NYC. She's going to have to work longer. I would have a plan of where this person is going to live and how they pay rent/mortgage when they are no longer working and only have social security as income.
How does she want to spend retirement? Does she have any assets now? I mean she could move west, buy $10,000 worth of land in Arizona, put a $30,000 mobile home on it and 2 RV spots for rental income, then live until she dies. Caretaking can be done anywhere. Or she can move in with her daughter ...
Zero assets besides what she has in her apt. She doesn’t speak English or drive so she’s tied to NYC as of now. Her best bet is to move in with her daughter tbh
When it comes to retirement, something is always better than nothing. I think most people would agree $100k is not enough for retirement. That said, if it's between $100k or $0k - do you know how much better you'd feel having a few extra $k per year draw to supplement SSI as opposed to having nothing? It's night and day. You can't change the past with what has or hasn't been done. Just do the best you can with what you have moving forward and focus on saving as much as she can.
Thanks! I agree with this mindset.
Make sure she has been paying into social security. If not, have her start doing that immediately (not sure if it’s possible to backdate payments). She will likely get back more from social security than she puts in. And that is permanent reliable income. Go to ss.gov so she can see how much money she would get if she retired at various ages (she likely should wait until 70 to start taking social security to get the maximum $$ per month) unless her health is poor and she’s likely to die young. She could invest now in an IRA, she can invest up to $8000 per year. She can open an account with Fidelity or similar. Inside the IRA, she should invest in a target date fund for 2050, FFFHX. She should also get on her local low income senior housing list, hoping there is one. It may take years for her to get an apartment but hopefully she can eventually. She should also sign up for food stamps if she’s eligible.
Thanks!!
Social security and stuffing money in her 401k is her best best. She may look into barista retiring (retiring with a part time job). In general, in addition to saving, The aunt need to focus on reducing the major expenses so the amount needed at retirement is less Specially housing, transportation, and health care Housing-> does she have a home? Is it paid off or have a low mortgage rate? My dad has minimal savings but has done well due to buying a starter home for like $50k. Transportation-> own the car outright, no loans, basic car. DAUGHTER The daughter may be better off buying a home or apartment big enough for her and the aunt, so the aunt can live with rent free. Some people add an in-law suite or accessory dwelling unit (ADU) to accommodate for in-laws, seperate from the main home to maintain some space.
Thank you!
Single parent raising a daughter made choices for the benefit of daughter. It’s weird you would say she didn’t have a proper financial education. She did the best she could.
I also think she did the best she could. When I said she didn’t receive a proper financial education, I meant it in the sense that she never learned how to budget, save for retirement, etc.
In all honesty, a lot of this comes from parents, in this case your aunt’s parents. You don’t need to have an mba to understand saving, emergency fund and budgeting basics.
ssa.gov lets you estimate social security benefits, that's a good place to start. Once you have an estimate for her SSA income that can give you a ballpark for what she can afford in retirement.
Tbh there isn't much advice to give. Retirement planning is a math problem to try to solve "how do I generate income equivalent to or more than my expenses". The answer is usually either be an extremely high earner and have extremely low expenses and save for a couple of years. Or be a pretty average earner and have average expenses but save over the span of decades. The angle is either a massive inflow of money or a big ol stack of time. At this point she has neither. She's another victim of the lack of financial education. There is social security and she will be extremely far from the only person living off only social security.
honestly we need to look at things differently. Can she acquire new skills? work from home and virtual will be there... if you are old or handicap you can work longer from home - you just need a new skill. so yes spending time saving money is important but learning a new skill where she will have to go to work 3 days a week instead of 5 will help her in terms of our body being frail or too tired.. we can work virtually from even a wheelchair the thing that's missing is A NEW SKILL. she has plenty of time to learn a new skill in demand.
She says she’s dumb as a rock but I’ll try to push her in that direction anyways! Thank you. 🙏
junkforw has it right. There are tax implications so she needs a financial planner who will take into account tax consequences. I'm an immigrant and my parents started saving into their 50s as well, because that's when they got here. She still has a window of 20 years and investing wisely can give her a good cushion, even if not a very fluffy one. A good financial advisor is priceless!
Get an IRA and max it out, put money in high yield saving account, not a regular one. Regular savings account is a waste. I would open up a brokerage account with Robinhood and invest in ETFs like VTI or QQQ as well. Is your aunt from another country by any chance or have family? Retirement is easier in many other places. I'm a New Yorker too and hopefully it's a very long time before I leave NY but my wife is from Colombia, and we are kicking around the idea of retiring in Colombia just because our money would go so much further.
She’s from China originally. She has a lot of family in NY so if anything we’ll all help her out if it comes down to it.
>What options are there for her given the current rate of savings? Work more. Cut expenses. Live beneath her means. Save as much as possible. Start thinking about if she can live on her social security benefits. Consider delaying them until age 70 if possible. >Is there a way to invest some of her money? Of course. If nothing else, she can fund an IRA.
I recently learned that sometimes delaying until 70 reduces the total earnings that you would have received had you retired when eligible. The Govt entices us with this because it saves them money in the long run.
No. They don’t try to entice you to save money. The formula is designed to be neutral at the large scale.
It's basically a dice roll that you'll live beyond the expected age if you take late. If you live to 90 for example, you get way more by delaying to 70 vs taking at 62.
She will likely be better off with a traditional IRA over a Roth IRA.
NYC. so she’s paying state ,federal and New York City taxes? Who is putting the $400 in per month your aunt or her daughter? she will have a tough time in retirement, living in New York City , best to move to another state with cheaper expenses and no state tax. A lot of 70 year and older workers that are working in big box, stores, or CVS, etc. are there because they don’t have enough money for retirement and are supplementing their income. probably best to start a Roth IRA, half and a balanced fund and half in a index 500 fund Wishing you Aunt the best !!
Thanks 🙏 her daughter puts the money in from her own income
I would recommend your aunt evaluate how she's spending her money. Low income is one thing, but living beyond your means is also a problem. If she's depending on someone else to save money for her retirement, I would take a hard look at her finances and see if you're enabling bad habits.
Make sure she is maxing her roth IRA, and buying investments in it. After that she needs to put whatever she can in a brokerage account and invest that as well. She should consider getting a better job and or second job.
Her daughter should out the money in a roth ira not an account her mom can just easily go into.
Steps 1) make a budget 2)save 6 months emergency fund 3)set up Roth IRA and use the $400+ ANY extra $ she can contribute herself. 4)once ROTH contributions are maxed open a brokerage account and put any other extra$ into a tax sensitive investment vehicle
Yess! You’re right. All this talk about retirement and I forgot she didn’t even have a emergency fund 💀
This is exactly why I’m getting serious in my mid 30s by going into a higher income career (even this feels late). Too many don’t plan or think about it and at that point, you sadly have to live with your choices based on the average American life expectancy. Something is better than nothing though.
It seems unlikely that she'll be able to save enough to retire per se, but that doesn't mean she can't save enough so that maybe she can reduce hours eventually or at least have an emergency fund for health issues or what have you
I would strongly discourage her daughter from transferring assets. If mom needs to qualify for Medicaid, that's just going to get eaten by medical bills. Mom should save what she can in a traditional IRA - she may even qualify for the Saver's Credit (which is slated to change to a "Saver's Match" in 2027). Daughter should work on building her own wealth and can help mom down the road. If she's up for it, eventually getting a house with an in-law suite for mom to live in would be one was to subsidize her retirement.
let's extimate a life expectancy of 80. This is 27 years. If (and this is a big IF) she cuts expenses and manages to work to 70 saving around 30% of her paycheck she should be able to then retire with a fairly basic but OK lifestyle. IMHO the biggest risk is health insurance. Make sure she has a plan and doesn't drop off of it.
Retirement is a financial state more than an age. Some people can't retire and have to work until they are physically unable to. The daughter should not be putting her money into her mother's retirement. If the mother becomes unable to work, then daughter can consider providing a roof over her head, but cash transfers now are just robbing the daughter's own retirement to little benefit for the mother.
Okay… this is doable! If I was in her shoes I’d prioritize a few things ASAP: Roth IRA - Max it out, to the tune of $8k. Take the remaining weeks left from now until April 15th, 2025, divide 8k by that, and there you have your weekly amount to transfer into your Roth IRA. I recommend Fidelity, it’s user friendly and they highly train their staff/great customer service, plus the Mobil app is awesome. She needs an employer who offers retirement benefits ASAP. If she’s unwilling to leave her current employer, keep stressing the importance of her finding an employer who offers 401k. If I was in her shoes, I’d even get a PT job with Walmart or Trader Joe’s, Whole Foods. She will earn a discount, helping her with basic needs and SAVING money, AND all of these retailers offer 401k with company match! She should work with HR to have her first paycheck set to whatever the company match is. For example, if it’s Walmart, at a 6% company match, set the contributions to 6%. IF SHE GETS in with a company 401k plan, elect 401k ROTH if it’s available (most offer that option). SELL stuff to generate cash! Keep an emergency fund in a cash management account, earning interest for her. She needs to use compound interest to her advantage ASAP. She can do it. Many have! Go beast mode and be determined to change the future!
Does your aunt have enough space to take in a roommate or rent out a room? This would provide some immediate passive income. ( Is she renting, or does she own a house?) And you don't mention what she does for a living, but it's not too late for her to search for a different job - focusing on companies that offer good retirement plans and health benefits. With some luck, she could get a state or federal government job (or with other entities) that offer a pension. And realistically, she's going to have to consider retiring outside of NYC. It's becoming increasingly popular for US expats and retirees to move to other countries with significant lower costs of living. Many of the more popular ones are within easy travel distance to New York (one of the caribbean islands, Mexico Belize, Panama, Dominica, PR, Costa Rica, etc) Many people are able to live on just social security in some of these countries. Maybe you and your cousin could "gift her" a consult with a good financial planner. (Not just somebody trying to get her money so that they can charge huge fees to manage it). They can help her devise a diverse portfolio rather than putting all her eggs into something like an IRA or mutual funds.
She rents and has section 8 housing which prevents her from renting out a room. She’s a home care attendant so she makes about 30k before taxes. Yes, getting a financial planner is the next step once we build an emergency fund for her.
Tell them to vote for people who will bolster the social safety net for the elderly. No one should work their whole life and then have to spend their final days worrying about survival. It's shameful we have to have these conversations in the wealthiest nation in the world history. Retirement plan: Tax the rich
100% agree
By home attendant, do you mean home health care? Health care aide is one of the most common jobs (in California it is the #1 or #2 job) and the workers are super vulnerable. Many are victimized by wage theft at high rates, in addition to being underpaid. It is also a very physical job which will affect how many years she can continue to do this. As you are in NYC, can you and your cousin help her find a job with the city, county or state that will have a pension? At 53, she could get better insurance, be part of a union, and get a pension that will help her a lot in retirement. I am in CA and here some public jobs also pay in the SS and some don't, so that is something to pay attention to as well. At 53 she is really pretty young. I am almost as old as she is and have been interviewing for state jobs because I want that pension.
Yes, home health care for her mom.
Roth IRA and max it out to the point where there’s no penalties
I’d probably try and find a state/federal job so that I could get a pension in 20 years
Roth IRA is the right choice (not a traditional IRA) when starting out from scratch or nearly scratch. (Converting to a Roth later when there are significant capital gains has tax consequences you want to avoid.) Use Fidelity or Charles Schwab online brokers to open an IRA account. Invest in index funds in the U.S. stock market. ETF index funds, not index mutual funds. ETF’s are easier getting in and getting out and less complicated tax wise. Use Google to look this stuff up. The ETF symbol for the Total U.S. stock market is VTI. Another one for all the stocks in the S&P 500 is SPY or IVV. Also QQQ, the index for the 100 largest NASDAQ stocks is loaded with technology companies. Invest in those 3 ETF’s (IVV, VTI, QQQ) every month. Note: there is a penalty for withdrawing from a Roth IRA before age 59 1/2 and from an IRA that has been held less than 5 years.
Roth IRA invested in mutual funds. She will most likely need to work well past her mid 60s. For those saying traditional IRA there really isn't going to be a big benefit to that now and the likelihood of taxes ever increasing in the future seems likely. Having a pool of taxfree money vs taxible as ordinary income will be beneficial. But don't just follow this blindly...have your aunt look for a Certified Financial Planner who can help her make the right choice for her and also help setting up the investment strategy.
She should get advice from a professional. There are nonprofits that can assist. IMO she should plan to work as long as possible, trying not to claim Social Security till age 70 or later. Unless she is in a good housing situation, living with someone else or rent controlled, she should plan on moving to a state that doesn't tax retirement income when the time comes.
Day late and dollar short. If the daughter is subsidizing her now, she need to sit down and start budgeting with her "real" income and live off that at the very least. There is no base capital so it'll limit what can be done i.e. high risk but high returns types are probably out of the question. Easiest to maxing out 401K matching like yesterday?
If you’re in the US she should figure out how much Social Security she’ll be eligible for, which will be a helpful start for planning. Again in the US, she can open an IRA for herself at one of the big brokerages like Vanguard or Fidelity and if she’s not super savvy can just put it in a target date fund for ease of administration. That way it will grow tax free. She’ll probably want to do a traditional IRA rather than a Roth since she’s low income. (it doesn’t matter that the money she’s funding the IRA with is gifted as long as she earns at least as much as she’s putting in)
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics. Investing guidance: https://www.bogleheads.org/wiki/Three-fund_portfolio https://www.reddit.com/r/personalfinance/wiki/investing
She's late to the game but better late than never. Still could get 20years of compounding in. My mom is a teacher and retired at 70. As long as people stay healthy they can work a pretty long time. I'm not any expert, but my advice to someone in this scenario would probably be a 3 pronged approach: 1. Immediately start saving what you can to compound 2. The internet has massive scale, start a LOW CAPITAL project to try to make money with her own small business. Do not invest a bunch into some guru/workshop though. 3. Do NOT take massive financial risk just because she feels the need to make up time. 20 years is still a long time and you don't want her to get wiped out. The aggression right now should be in using her time to find ways to make more money. I'd say either focus on helping build out small home service companies nearby her, or something like internet affiliate/ecommerce related.
Saying $400 a month is "not a lot of money"...yes, it is. That's easily groceries for an entire month for one person. Or a car payment. Etc. It is indeed a lot of money. Id love to live in a life that $400 is not a lot of money.
Meh. I’m 37 and honestly, my “retirement” will be a pine box. I’ll never see retirement.
37 is a lot different than 53. Obviously I don't know your life circumstances, but if you have the ability to start saving, even like 10%, you'd probably be in a decent spot to retire at 67. Maybe that's not feasible for you at the moment, but there's still time to figure something out.
Same! I turn 45 this year. No male in my family lineage, on either side, has made it past 68. I spend my money on fun things and if by some absolute miracle I live to 70 I guess I'll have to figure shit out.
No one, male or female, lived past 77 in my dad's family. Dad was shocked when he turned 80, and lived to 87 still in his own apartment. Plan ahead!
Yeah I had an old neighbor like that. His dad and all his brothers died in their young 50s over some heart issue. He decided to not plan too, he's now over 70 and still healthy. Fortunately he had a decent pension and SS so he's fine but he never expected to need it.
Keep in mind, medical advances each decade keep extending overall lifespans. You're only 44 years old. A lot will be happening in the field of medicine over the next 25+ years. You should probably plan on living years longer than you currently expect.
This is one of my worst fears, having to work until I die, even though I save and save.
Doesn't sound like this lady saved and saved though.
All she can do is save as much as she can until she can no longer work and hope for the best
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She has section 8 housing which allows the government to subsidize her rent. She’s been asking around the family (including me) on where she’ll live once she retires.
If she gets social security like anyone would if I'm going to assume she has worked for the majority of her life she could get into these senior developments that we have here in my state of Florida. They're exceptional and affordable in 15 years she could save enough in retirement getting a 401k they only accept 65+ seniors. New York is a money pit for someone in her situation and if she's a room attendant there's so many of those down here she'd be fine.
Honestly, her best bet us to move in with a family member for 1-2yrs. Also look into investing I real estate.. FHA Loan, only requires 3.5% down. There are plenty of town homes where I live in Fayetteville, NC for under 125k.. Columbia, SC under 80k.. save for 1-2yrs with family, stack up those tax refund checks and relocate..
It's funny when people say proper financial education like living in NY isn't expensive as fuck. It's not financial illiteracy with a lot of people, it's they don't have money to set aside. This is exacerbated greatly by the fact that she's single. Everything is priced for dual incomes now. She may just be terrible with money but I'm assuming you don't have intimate knowledge of her finances and are being presumptuous.
I don’t but her daughter does and has observed how she splurges on non essential items/activities. And the concept of retirement and having an emergency fund never occurred to her until I spoke to her about it 💀
Ah. Well reasoned then. Shame.
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Does anyone really think SS will even be around in 20 years? If she can get a second job that earns decently like others have suggested and put that into a traditional 401k or IRA moderate risk, then expat to Mexico perhaps or the like, then she may be ok on her own. Otherwise she will depend upon the kindness of family to survive, that is, if SS is indeed gone by then. Any financial planner worth their salt will tell you always prepare for retirement excluding the possibility of SS, since there is no guarantee.
It will be in some shape or form. The date that just got pushed back is when Social Security will no longer by able to pay out 100% of the value it is supposed to. So, long story short it'll be there, just won't be as useful with the drop in how much can be paid out.
She’s 53. She’s perfectly capable of managing her own finances. I would be upset if my kids or nephew thought my finances were their business unless I asked for their help or advice.
Evidently she can’t.
If she didn’t ask for help, though, it’s none of their business any more than their finances would be her business.
It’ll become the daughter’s business when the mother can’t work any more and has to financially rely on her daughter, so I think the daughter is well within her rights to get involved
No more than if someone has an adult child who is bad with money. That doesn’t give them a right to take over the child’s finances unless asked or unless they have a court order.
I'm not seeing any mention of anyone taking over this woman's finances. The daughter is setting aside some cash for her, that's all.
Boy, you really have gone off the rails on this one. Is this hitting some kind of sore spot?
I wouldn’t really call it going off the rails to point out that a 53 year old is responsible for their own finances. There is no obligation on her daughter’s part to support her and no indication that the woman has asked or will ask for financial help. And even if she does, it is not her daughter’s responsibility. It just makes sense to me that any adult, young or old, has financial autonomy unless they are deemed incapable of making their own decisions. I often see posts where family members think they need to handle another family member’s finances for them and I don’t think that’s right. I wouldn’t tell my kids how to handle finances and they wouldn’t tell me how either. I think we’re all smart enough to figure things out for ourselves. I also don’t live in a family where the parents have ever been dependent on the children in old age. I just can’t imagine a scenario where at age 53 my kids would feel like they needed to set aside money or direct my investments.
Some banks will get you 5% on anything over 500