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By Kirk Shinkle Kirk Shinkle Fri Aug 7, 3:28 pm ET
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 mom and dad'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.
Start the conversation early. 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, noncrisis atmosphere,"
says Neal E. Cutler, a long-time financial gerontology expert and executive
director of the Center 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, 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 says. It's important to keep the money
discussion civil over time. "It all depends on how close middle-age kids are to
their parents," he says. "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 your 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 sizeable 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,"
says Colleen Schon, a senior vice president with Raymond James & Associates in
Auburn Hills, Mich. She says 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 8 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 sizeable financial hit are very real.
[Also see How Much Should You Invest in Stocks?]
Do something for long-term healthcare. Some 40 percent 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 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.
Medicare and Medicaid programs don't cover most middle-class retirees when it
comes to long-term care. 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
says planning for long-term care is vital because it's among the biggest
worries that keep children up nights worrying about parental healthcare-related
costs. He notes that many older Americans have fairly stable retirement income
from some combination of pension plans and Medicare, 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 says.
Think past retirement: both yours and theirs. Cutler says another good first
step in planning for the future of several generations is rethinking the way
many Americans plan for their retirement. That means it's not just thinking in
terms of how you'll make it to the end of your working life, but how aging in
the entire family might play out. Retirement, he says, should be just one
variable in what should really be a plan based on longevity. With both parents
and children living longer, the question of how long you'll live becomes a more
important determinant of financial needs. "The key is longevity planning rather
than retirement planning, and that means longevity planning for yourself and
your parents," he says. It's an important distinction because everyone is
living longer. In 1900, just 7 percent of 60-year-olds had a parent still
living. By 1990, 49 percent had a parent still living.
[Also see A New Era for Stocks.]
Get organized. Organizing aging parents' finances may be as important as
deciding how to manage them. Knowing where investments, insurance policies,
wills, and other key documents are located (plus any associated PIN numbers or
passwords for online accounts) is still an often overlooked step in the
process. Schon says she gives clients a basic checklist--a will, trusts,
medical power of attorney, durable power of attorney. She also suggests making
a personal data checklist for each parent that outlines debt, income, and tax
and medical histories. Documents included in these lists should be updated
every four to five years. And check in with parents regularly. If a crisis like
a death or an incapacitating illness does strike before those plans can be made
and a parent is incapacitated, Schon advises looking for assets listed on old
tax returns (although they won't include documentation for life insurance and
other types of policies).