Parents spend their entire lives planning for their children’s future but, as goes the circle of life, there comes a point when that responsibility starts to shift. As their parents age, many children take on the role of caretaker. They do all the things that their parents once did for them: drive them to the store, make them their meals, and so on.
Remember when you were a kid and your parents gave you an allowance, or only let you spend a certain amount of money at the store? They were, in a small way, helping protect your finances.
Well, one of the most important aspects of becoming involved in your parents’ lives is understanding their financial situation- especially in situations when age or disease demand your involvement. Of course your parents might not take well to this, but it’s important that you get involved early and often in your their financial planning.
More and more children are finding themselves either completely or partially financially responsible for their parents in their retirement. In some cases, that situation is unavoidable, but there is a way to make sure your parents have financial stability as they age and make that transition from “supported” to “supporter” easier on you and them. The main thing is to discuss the issue early. It’s easier to plan for your parents’ financial future if you’re not planning out your own retirement at the same time. Talk about it early, and talk about it often.
Some parents try to avoid discussing their personal finances with their kids, so it could be helpful to start the discussion by asking your parents for advice on your own finances. That gives you a window into the decisions they have made, and allows you to give them bits of advice you think they would find useful, without hurting any egos. Once that window is open, there are a five different pieces of information you need to discuss about your parents’ financial situation and future plans.
1. Important documents: most parents have their “clever” secret hiding spots where they keep all their important files and documents. It’s important that you ask them where these documents are located while they still remember it: things like their living trust, will and living-will, financial power of attorney, advanced healthcare directive, information on their financial accounts and more. Knowing where these are kept is critical because you will know your parents actually have the documents and where they are in the case of an emergency.
2. Long-term care insurance: it can seem like an uncomfortable subject, but the earlier you talk to your parents about their long term care, the less expensive it will be for both them and you. Like any insurance, long-term care insurance is cheaper if you buy it when you’re younger and healthier. Even with parents as young as 50 years old, planning for the financial strain that long-term care can present is a conversation worth having.
3. Social Security planning: Social Security is a blanket that covers a lot of people in their retirement plans, but it’s important for your parents to determine when they should be “tucked in”. The point at which a person should begin to collect Social Security benefits depends on a few details, details which you should ask your parents about: how much they have saved in various contribution plans such as a 401(k) or IRA accounts, and how much they can expect to receive from possible pensions. The funds available to them in these accounts can drastically affect the point at which they should apply for Social Security benefits.
4. Investment legitimacy: we all have that sweet aunt who proudly told everyone how she received that letter in the mail informing her that she won the jackpot in some sweepstakes and will receive the prize money just as soon as she sends in her bank account information. This is obviously a drastic example, but older individuals are often targeted by scammers so it’s critical that you ask your parents about the investments they have made to ensure that they aren’t involved in anything risky. Even investments that are legitimate may involve too much risk to be worthwhile for them. Enlisting the help of a certified financial advisor is the best way to handle this.
5. Plan for their plans: trends have shifted to the point where the majority of young people expect to care for their elderly parents in the future. In order to plan for this care, you need to know their plans. Ask them when they expect to retire, where they plan to live, and how much money they have saved. These answers will allow you to better prepare your own finances in order to give them the support they may need down the road.
When it comes to your parents’ financial future there is a lot to discuss. It may not be easy or fun, but it’s the circle of life, and embracing your new role to clear up the essentials now can save your parents- and you- a lot of money later.