A recent study by Transamerica Center suggested that 54% of American retirees admit to not having enough money saved for retirement. Meanwhile, 73% of younger Americans revealed that they had not had a detailed talk about finances with their aging parents. This absence of communication between generations is setting families up for financial trouble down the road.
We’re here to give you some suggestions on how to broach what has traditionally been a taboo topic. Because let’s be honest: whether you talk about it now or continue to put it off, you’ll probably need to sort out your parent’s finances one day. Here are some questions you should consider asking your parents as they grow older:
1. Who are the people you rely on to discuss your finances?
Every family situation is unique. Many parents will be reluctant to talk to their children about their finances, especially if they feel like they’ve come up short of their retirement goals. The thought of the conversation, alone, threatens to turn the parent-child dynamic on its head. And if one of your parents has recently passed away, it’s possible that the other is embarrassed to not have a handle on the financial situation.
The key is that they have an advisor, attorney, estate planner, or another trusted professional with whom they can rely on to sort through all of their financial details. If they have such a person already – great! Ask for their contact information in case of an emergency. And if they don’t yet have someone in their corner, consider helping to connect them with one. This could be the bridge you need to get involved in your joint financial futures.
2. When was the last time you updated your estate plan?
People often write estate planning documents when there is a major life change – it’s possible that the last time your parents updated their own was after the last of their grandchildren were born. However, it’s critical that they review their estate plan regularly to ensure that their final wishes are carried out. Is the financial portion of the plan up-to-date with loved ones and current charities? Or does it require a tune-up?
It’s important to also discuss updating beneficiaries in retirement accounts and life insurance plans. Estate planning documents usually do not supersede individual account designations – so if they just updated the latter, there could be a later dispute that ends up in a courtroom. Finally, can you access the documents? Many older Americans keep their wills in safety deposit boxes at banks but these can be difficult to access in case of an emergency. Make sure there are digital copies that you can get to quickly.
3. Do you plan to stay in your home or downsize?
We always like to talk about this as making sure the parents (or our current client) can make the decision on their own to move, not be forced to move due to health or financial issues. Selling the house where you raised your family is fraught with emotions. Having parents make the decision on their own after careful plan makes it a whole lot easier since many are reluctant to ever move from “their home”.
Your parents may plan to stay in their home now but that could change as they age. Beyond the financial element, will it become a burden to maintain? And if they have any health issues will they lose access to parts of the home? A smaller home on one level might make more sense. Just knowing whether or not they view working in the yard as a chore or a pleasure would go a long way toward understanding their mindset.
Moreover, if they are considering a downsize, have they looked at what that could mean for their finances? It might help to sit down and walk them through just how much of their current time and money goes toward their mortgage (if they still have one), taxes, insurance, maintenance, and utilities. They’ve probably been doing it so long they don’t even realize all of the hidden costs. Then, show them similar numbers for alternative housing. It might open their eyes to see the difference!
4. Have you thought about long-term care?
Perhaps the most important part of the financial conversation is understanding your parents’ wishes if they can no longer care for themselves physically. This goes beyond the housing element discussed above. If they’re both alive, your parents probably still view themselves as young enough that they will be able to take care of each other. But this can change as they age and their health deteriorates.
The earlier this conversation happens the better because once you are over 60 long-term care or other insurance options that can provide money for LTC can become prohibitively expensive, or ones health can make it impossible to obtain coverage. At a minimum, you need to ensure that your parents understand their health insurance and Medicaid benefits. What is covered and what isn’t, and what are the annual and lifetime maximums?
Then, ask if they have any type of long-term care coverage to fill in the gaps. By the time someone reaches age 65, they have a 50% chance of one day needing long-term care. Considering that the average out-of-pocket cost for care without insurance is $140,000 they should consider working long-term care premiums into their budget. Our prior long-term care blog walks you through some of your options.
5. What are your wishes regarding life support?
It’s critical for you to know your parents’ wishes for medical treatment at the end of their life or in a situation where they become permanently incapacitated or unconscious. These wishes should be documented in the portion of their estate plan known as a living will.
Moreover, they also should designate a healthcare power-of-attorney and/or financial power-of-attorney to make decisions on their behalf should they become unable to do so on their own. There are some key differences between the two types of designations so make sure you and your parents know the distinctions and what is covered.
Let Us Help You (and Your Parents) Develop a Plan
Here at Magellan Financial, our clients come to us with many concerns including how to handle money concerns that cross multiple generations. Even the difficult questions can usually be managed with proper planning, good communication, and goal-setting that helps you understand what you need to do to get where you eventually want to be.
No matter where you or your parents stand, contact us here at Magellan today for help setting solid financial goals and developing a plan to achieve them. We’re here to help you with estate planning strategies, retirement, investment planning, and much more.
Wells Fargo Advisors is not a legal or tax advisor.
The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.