Ideas for managing your aging parents finances

It’s
not an easy subject to discuss: As aging parents start to slow down, more of
their children — often baby boomers nearing retirement themselves — are
tasked with planning your parent’s financial future.

The
transition can be difficult, but early planning and open lines of communication
between generations can go a long way toward making sure the entire family can
enjoy their golden years together.

When
roles reverse and parents are forced to rely on family for financial help,
experts say many aging parents feel they’re giving up control to their
children. That’s why it’s important to develop an open, trusting relationship
with your parents regarding money well before any crisis hits.

“The
key is to get that conversation started fairly early. I don’t think the key
issue is how you mix your stocks and bonds — it’s how to get the conversation
between the generations started in a calm, non-crisis atmosphere,” said Neal E.
Cutler, a long-time financial gerontology expert and executive director of the
Centre on Aging, a research arm of the Motion Picture and Television Fund. That
includes discussing basic issues with parents regarding where they want to live
if their health starts to decline. Will they move into a nursing home? Head for
sunnier climes? Do they want to be near family, or their church?

Families
can estimate the costs together. If parents are unwilling to talk about money,
Mr. Cutler recommended that children come at them sideways with stories of
friends in similar situations or frame questions as a way to make sure
grandchildren are provided for. “The key is to make it clear you’re not trying
to steal their money or tell them how to invest their money because they’re not
competent,” he said.

It’s
important to keep the money discussion civil over time. “It all depends on how
close middle-age kids are to their parents,” Cutler said. “If there was a total
rupture over the past 20 to 30 years, you can’t just walk in and say, ‘Let’s talk
about your money.’”

Rethink investments

The
fortunes of aging parents must also be a consideration in their children’s
retirement plans and should be factored in when the younger generation is
deciding how to allocate assets. For example, by the time most Americans are
ready to retire; common investing wisdom dictates that a sizable chunk of
retirement assets might be in fixed-income investments, with smaller chunks in
stocks and cash. An ailing parent might require shifting more money to cash in
order to pay their near-term bills — and possibly postponing retirement for a
year or two in order to cover the subsequent shortfall.

“You
really do have a choice to make: Is it them, now, and you’ll have to delay your
retirement plan? It’s a tough choice to make,” said Colleen Schon, a senior
vice president with Raymond James & Associates in Auburn Hills, Mich. She
said most children underestimate the cost of funding the care of an aging
parent. She says a $500,000 portfolio may seem like a lot but will cover only
about eight and a half years in an assisted-living facility. If your parents
are in their 70s and their parents lived well into their 90s, the chances of a
sizable financial hit are very real.

Long-term health care

 

About
40 per cent of people over age 65 will spend time in a nursing home, and the
costs can be substantial. A recent survey by Genworth Financial shows the US
national average median monthly cost for a private room in an assisted-living
facility is $2,825.

To
cover that cost, some extra security in the form of long-term-care insurance
may be in order. Insurance can be purchased at reasonable rates and at a fraction
of the costs of even just a few months in a nursing home.

Cutler
said planning for long-term care is vital because it’s among the biggest
worries that keep children up nights worrying about parental health care costs.
He noted that many older Americans have fairly stable retirement income from
some combination of pension plans, but the higher cost of long-term care isn’t
covered by those plans. “It’s a bigger unknown, and it’s less predictable,” he
said.

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