It’s not an easy subject to
discuss: As ageing parents start to slow down, more of their children – often
baby boomers nearing retirement themselves – are tasked with planning their
parents’ 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
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.
Start the discussion early
“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
longtime 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 recommends
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-aged kids are
to their parents,” Mr. 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.’”
The fortunes of ageing 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, Michigan. She said most children
underestimate the cost of funding the care of an ageing 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 bought 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. 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.