Helping Your Aging Parents Plan For Their Financial Future

July 23, 2018
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When your parents make the decision to retire and depend on their savings or investments rather than a steady income, this new life stage requires a different kind of financial planning—both for them and for you. As they grow older, the likelihood of health concerns will increase, and their level of independence might decrease.

This means, over time, the responsibility of caring for them may become yours, and that includes their finances. In order to prepare for this eventuality, start thinking ahead and choosing the right approach to secure their monetary future. Your parents might initially push back against the idea of sharing financial decisions and obligations with you, but implementing these four action steps will communicate that you’re prioritizing their welfare—not questioning their competency or undermining their autonomy.

Know When to Broach the Subject.

Arguably the most daunting part of this ordeal is navigating the preliminary discussion. It’s often uncomfortable—distressing even—for parents to include their children in fiscal matters. This requires them to confront the aging process and their gradual dependence on the now-adults they raised. Because it’s a sensitive topic, be discerning about when and how to broach the issue of finances. You want to preemptively talk about this before the mounting expenditures accrue, but you also want to avoid making them feel patronized. As a general baseline, adopt the “40-70 Rule,” which suggests that when you reach 40, and your parents reach 70, it’s time to jointly address their financial future.

Arrange Their Financial Documents.

When the opportune moment for this conversation arises, make a point to review your parents’ financial documentation together. This empowers them to be active contributors in the process, while enabling you to keep the records organized and accessible. These documents also offer clarification on what your parents’ financial situation entails. Some critical information you need to access are their utility and mortgage statements, bank and brokerage accounts, retirement plans and pensions, membership dues (e.g., HOA or AARP), loan or credit card balances, will and testament forms, Social Security documents, insurance policies, birth and marriage certificates, PINs and login verifications, property deeds, investment profiles, tax returns, and vehicle titles.

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Consider Housing and Healthcare.

One of the inevitable parts of aging is the upsurge in medical costs and enhanced levels of homecare. Original Medicare can leave beneficiaries exposed to significant costs, so it’s important to evaluate all of the private insurance options available, including Medicare Advantage, prescription drug plans, and Medicare Supplement plans.

About 20 percent of beneficiaries have a Medicare Supplement plan, which is great for seniors who have the means to pay a little more for the highest level of convenience and flexibility afforded by these plans.

Private insurance companies can cover prescriptions and medical treatments, but if you are concerned that your parents’ needs could become more intensive—such as not being able to perform basic everyday tasks on their own, like getting out of bed—you should consider purchasing long-term care (LTC) insurance while they are still in good health. LTC insurance can offer coverage for a wide range of transitional options as their mobility is more restricted, and frequent supervision becomes necessary. In the event you need to prepare for an alternative housing or medical situation, LTC insurance can cover assisted living facilities, skilled nursing or rehabilitation centers, and home-based healthcare and hospice visitations, to name a few examples.

Another option may be short-term care insurance, which offers benefits for up to one year. This coverage is usually cheaper and easier to get than LTC insurance, but it’s also less robust.

Plan for the Unforeseen Expenses.

Housing and healthcare are two of the major expenses that your aging parents could face—but these aren’t the only financial burdens to think about. Without a reliable income stream during these retirement years, expenditures like home and vehicle maintenance, natural disaster repairs, emergency incidents, last-minute travel obligations, and other sporadic or unexpected costs are taken directly out-of-pocket. This can be blindsiding if you and your parents don’t make an effort to prepare in advance. So create a monthly budget for them that applies the Four Rules Method: 1) assign each dollar a category, 2) earmark money for large purchases ahead of time, 3) adjust with flexibility if needed, and 4) track the cash flow to ensure that saving outweighs spending so they can eventually start living on last month’s income.

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Addressing finances with your parents can be delicate and dicey—but it’s also non-negotiable as they continue getting older. The more proactive and intentional you are about budgeting for this transition right now, the more equipped all of you are going to be when the changes in their lifestyle happen later on. Financial preparation leads to a smooth retirement for your parents and keeps the stress at a minimum for you.

About Michael Z. Stahl

Michael serves as Executive Vice President and Chief Marketing Officer of HealthMarkets. He has a B.S. in Economics from The Wharton School, University of Pennsylvania.