Old age happens to everyone, hopefully. And when we start to see the signs of age showing for our loved ones, it’s time to have some honest conversations about financial planning for our aging parents. Ideally, the time to start thinking about financial planning is not when you retire, but when you are young and sprightly. But there is no time like the present to take stock of your family’s financial situation. Conversations about money can be very difficult to have with parents, but it is important to air these topics out, especially if you will be the primary financial caretaker of them as they get older.
Talk About Expectations for Their Retirement
Talk with your aging parents about their retirement planning. Hopefully, this conversation can happen while they are still working and you can work with them to ensure that they are on track to have their financial needs taken care of when they retire and at the very least become aware of everyone’s expectations. If they are not on track to have a comfortable cash cushion, do they expect you to care for them? Are you prepared to care for them financially and/or physically? If they own a house, when will it be paid in full and what other assets do they own which could be liquidated to pay for expenses if the need arises? Getting these expectations on the table can help your parents craft a retirement plan that works for them and for the rest of the family. If your family members need help with crafting a retirement plan or with determining how to make their nest egg grow to meet their needs, consider sitting down with them and a financial advisor to discuss their unique financial needs.
A financial advisor can help your aging parents to invest in their retirement and balance their investments to meet their short term cash needs and long term growth needs. Being properly invested can keep the cash coming in to meet your parents’ day-to-day needs and not drain down their nest egg principal. Keeping that principal invested and growing avoids them running out of money in a potentially lengthy retirement.
Health Care Insurance
If your parents were lucky enough to retire from a company that allows them to continue to pay for a health insurance plan through the company benefits plan, that is for the best. But most people are not able to obtain that kind of medical insurance benefit, either because their company does not offer it or because they did not work for a single organization for long enough to be entitled to such a benefit. If that be the case, talk with your aging parents about their current and future health insurance needs. Do they have any ongoing medical condition that is expected to continue or worsen into old age? Are they at risk of developing a new condition? Help them check out their health insurance options and don’t forget about Medicare, which you can even have as a secondary payer if you have primary health insurance coverage with a private insurer.
Long-Term Care Insurance
Long-term care insurance can pay for expensive long term nursing home care that many elderly people find themselves in need of and also find as a major drain on their nest egg. The last thing you want is for your elderly parent to run out of money while staying at a nursing home. Again, planning ahead is key because the best time to buy long-term care insurance is when you are 50-60 years old. After that, premiums rise sharply. For most adults, it is about a 50-50 chance that they will need nursing home care, thus have a need for this insurance. Talk with your parents about their needs and if they could afford to pay out of pocket for both of them to have a lengthy nursing home stay, if necessary. An unfortunate and often repeated circumstance is that one parent requires a lengthy nursing home stay which spends the majority of the couple’s retirement savings, leaving the surviving spouse without enough money to pay for their own nursing care. Consider your family’s options, talk to your parent’s doctors, and have a conversation with an honest insurance professional to determine their needs.
Life Insurance
No one wants to talk about death, but it happens to everyone. And as we age we must be sure that we are planning ahead to care for our family to cover burial expenses and other financial commitments after we pass. Talk to your parents about their life insurance situation. Elderly parents of adult children may no longer carry a term life insurance plan, especially if they have savings for their surviving spouse to use to pay for expenses. If your parents own a whole life policy, check to see the cash value, fees, and growth of the policy. In some cases, it may be worthwhile to cancel a term or whole life policy if the financial need for the insurance no longer exists (ie. no dependents) or if the policy is not cost-effective. If your parents purchased a pre-paid burial plan or have already purchased a burial plot, be sure they share with you the information on these so that you will be able to adhere to their wishes and not pay twice due to lack of information.
Discuss Their Will
If your parents don’t have a will right now, they had better draft one up. Making a will can seem like tempting fate but believe me, no one will die just because they write down their last wishes. It does not have to be daunting and for most families with an uncomplicated financial picture, it can be inexpensive and fairly straightforward. Have your parents write down their wishes and take it to an attorney in their state since wills are state-specific. If they already have a will completed, make sure that it is valid in their state and up to date, then encourage them to discuss it with all family members involved. Getting this information out in the open allows family members to know what assets are to be divided and to whom they will be bequeathed. This helps to avoid any potential squabbles that could arise when everyone is grieving and can most smoothly allow the executor to know their responsibilities when the time comes.
If your parents plan to pass on an inheritance to their family, they should also work with a financial advisor to create their inheritance plans. In some circumstances, it is best to create a family trust, in others a simple transition of property and assets can occur without a trust. Outlining this succession plan can avoid going to probate court and ease the transition for the family.
Taking the time to have these important conversations about financial planning with your aging parents can help both you and your parents navigate the future financial waters with certainty. Ensuring that their plans are made known to the family, that they have the right insurance and documents in place, and that their savings are appropriately being invested for their future can help alleviate stress for both your aging parents and you.
