People are living longer than ever before. Thirty years ago, the average life expectancy in the U.S. was 74.5 years. Today, that number is inching toward 80 years due to advances in medical care,
There are countless benefits of increased longevity, but there’s also an unanticipated disadvantage: the financial toll of living longer. The Employee Benefits Research Institute warns that millions of Americans – even those who consider themselves well-prepared for retirement – may not have sufficient assets to cover expenses during their golden years.
Financial planning and money management can be sensitive topics in many families, especially among aging parents and their children, says Mike Sullivan, director of education for Take Charge America.
“Many elderly adults are unable to determine the financial steps they need to take, or they are hesitant to share financial struggles with their children,” he said. “It’s important that the children of aging parents try to open a dialogue about finances as early as possible so they can gain a better understanding of the parents’ preparedness and assist them if needed. The first discussion should happen before the parents turn 70. If the parents are unwilling to have this discussion with their children, the children should suggest another person who the parents might trust.”
Sullivan suggests starting the dialogue with a discussion about expenses and income. If this discussion is successful, it may be time to have a follow up discussion on investments and end-of-life planning. An evaluation of each of these will help the family determine their financial well-being and their preparation for the future. Discussion points should include:
Expenses: What are your parents’ monthly expenses? Do they have a mortgage, credit card or other payments? Health insurance premiums or monthly prescription costs? What are their total expenses?
Income: What is your parents’ monthly cash flow from pensions, Social Security, investments, IRAs and other sources? Is it enough to meet expenses?
Investments: If your parents have investments, it’s important to make sure their portfolio matches their investment objectives. For seniors, the most important objectives are safety and earnings.
Scams: In 2009, MetLife’s Mature Market Institute estimated that seniors lose approximately $2.6 billion each year to fraud, scams and theft by family members and acquaintances – and much fraud is believed to be widely unreported. Take time to educate your parents about potential scams. Common methods include:
- Fake telephone calls or mail offers for prescription discounts
- Callers or door-to-door solicitors who ask for donations on behalf of charitable organizations
- Sweepstakes scams and lottery “checks” received by mail
Life Insurance: Do your parents have life insurance? Is it whole life or term? Are their policies paid in full, or are they making regular payments to keep the insurance in force? Finally, is life insurance really necessary? Do your parents have a mortgage, other debt or dependents? If not, the answer may be no.
Estate Planning and Will: Have your parents created an estate plan and/or will? If so, have they reviewed it recently? If not, recommend meeting with an estate planner to ensure the will and/or estate plan addresses their wishes. Their plan should include medical directives, health care proxies, living wills and division of assets. If there is a trust, it should be reviewed every five years by an attorney.
Power of Attorney for Finance: Do your parents have a power of attorney for finance? This becomes increasingly important as they grow older. If they’re not comfortable granting this designation to one of their children, they can appoint their lawyer or another trusted advisor but someone needs to know where the document is in the event of an emergency.
Power of Attorney for Health Care: Do your parents have a power of attorney for health care? Do the children have a copy?
Insurance: Do your parents have life insurance? Is it whole life or term? Are their policies paid in full, or are they making regular payments to keep the insurance in force? Finally, is life insurance really necessary? Do your parents have a mortgage, other debt or dependents? If not, the answer may be no.
Life Insurance: Do they have supplemental insurance of any kind? Does anyone have a copy of Medicare cards? Do they have long-term care insurance? It’s important to understand your parents’ desires and evaluate options as they grow older. For instance:
- Nursing home care, which averages more than $50,000 a year, can quickly drain a nest egg, but Medicaid will cover the costs once a senior’s other assets have been exhausted.
- Home health care, which is typically billed on an hourly basis, averages about $21 an hour.
- In many cases, adult children assume the caregiver role for their aging parents, helping with expenses, driving them to and from doctors’ appointments, managing their prescriptions, and helping them with bathing, dressing, housekeeping and grocery shopping. Children and parents need to understand if this is an option.
Financial Documents and Valuables: : It’s critical to know where your parents keep their valuables, financial documents, and other important legal and medical information. Here is a checklist to reference:
- Names and phone numbers of physicians, lawyers and insurance agents
- List of all financial accounts and numbers, e.g. bank accounts, IRAs, mutual funds, pension plans, etc.
- Monthly expenses, e.g. mortgage, loans, credit card bills, gas and electric, car insurance, phone bill, cable, etc.
- Income, e.g. dividends, pension, Social Security statements, etc.
- Copies of life, long-term care, health, home and auto insurance policies
- Power-of-attorney documents
- Tax returns
- Copies of birth certificates
- Copies of marriage and divorce certificates
- Social Security cards
- Safes, safe deposit boxes and valuables such as jewelry
The time to broach the topic with your parents – to ask questions, evaluate options and make necessary plans to ensure their financial security now and in the future – is before they demonstrate significant physical or mental decline. Do not wait until they are 80 to start the discussion.