How to talk finances with an aging parent
December 05, 2011
This is the second installment in the Money Talks series, which offers tips and advice for individuals facing various sensitive financial conversations with loved ones.
Talking finances with your aging parents can be an uncomfortable task. But it can also be a vital step in ensuring their financial well-being through their later years -- and ensuring your peace of mind too.
A AgingCare study found that while an estimated 34 million adults provide care for elderly family members, 63 percent of them don't have a plan for paying their aging parents' bills. Many caregivers instead wind up dipping into their own pockets for their parents' prescription-drug and nursing expenses.
Even if your elders live on their own -- without your care or financial support -- it's still wise to make sure their personal and economic needs are being met. So as your family gathers together this holiday season, here are five tips for having a productive and efficient money discussion with your parents.
1. Pick the right moment (but sooner is better than later)
Often the first obstacle to talking with mom or dad about their finances is choosing that "best" time for the discussion.
But realistically, an ideal time may never emerge. So it's often best to forge ahead with a conversation whenever you have some private time alone. Just be sure to do it at a low-stress moment -- not while either of you is engrossed in holiday activities, such as cooking Christmas dinner or shopping for a last-minute gift.
But even if you pick a reasonable time to raise the issue, be prepared for the possibility that your parent may refuse to seriously address his or her finances. "Sometimes elders are very resistant to talking with family about finances," says Jenefer Duane, Founder and CEO of the Elder Financial Protection Network.
Don't take it personally. Elderly people may not want to talk about their finances or future plans because of fears of becoming dependent, worries about burdening you with their problems, or embarrassment about their circumstances.
Still, don't sit back and hope that the parent will come around. Procrastination is risky because if your parent suffers an illness or injury, having that rational talk about finances with them could prove difficult or even impossible.
2. Discuss rather than dictate
One way to ease into the conversation is by discussing your own financial situation or talking about money matters in the news, suggests Linda Descano, CFA, President and CEO of Women & Co.
Today's seniors face a host of economic issues -- credit card debt, rising health-care costs and a lack of savings among them -- so pick a news subject and ask your parents about their financial condition on that topic.
But don't make the mistake of approaching your parent as if you're the person with all the answers. Even if you're financially successfully, this approach may put them off and make them unwilling to talk.
Instead of dictating a list of things they need to do or criticizing their low savings rates, discuss their situation and find out what their needs and wishes are. Then offer your assistance and explain to your parents that you'd like to help ensure that they have everything they need.
3. Ask about important documents
After your parents have agreed to your help, ask where their important documents are kept, including their last will and testament, durable power of attorney, health care proxy and life insurance documents. Also ask for a list of their key contacts, such as insurance agents or attorneys who should be consulted in the event of an accident or medical crisis.
Dan Cotter, principal and director of risk management at Rehmann, a business consulting firm, recalls an 87-year-old client who claimed to have only one life insurance policy. "But after five years, we found another life insurance policy for $10,000," says Cotter. "It was from a small carrier and he bought the policy during World War II."
The client had forgotten about the policy, but it turned up on a letter for additional premiums.
The lesson: "Document everything and include records of where everything is," says Cotter.
4. Get an overview of their finances
"By seeing how your parents are living today, you can gauge how prepared they are for their future," says Descano. She suggests engaging them in a discussion, perhaps along with a financial adviser, to determine:
- Their current assets and income
- Their current debt and spending
- Their percentage of liquid assets
- Their plans for covering medical and care-giving costs
By doing so, you can get a better sense of what financial obstacles may lie ahead, as well as what preparations your parent has made for them already.
5. Address current and potential problems and solutions
If you find financial gaps or spot likely problems in the future, tackle them now. For instance, if your parents haven't saved enough money or they don't have a long-term care policy, discuss what options are realistic and preferable.
"It's never too late to start saving," says Elaine Smith, a tax adviser and agent at H&R Block.
If parents are still working, have them consider socking away money for health-care costs into a health savings account (HSA) on a pre-tax basis.
For long-term care insurance, if a parent can't afford it and they live with you, a tax break could make paying for coverage more attractive. "If you claim mom as a dependent and you pay for her long-term care coverage, then you could deduct those premiums from your taxes," says Smith.
Finally, if your parents haven't done so already, encourage them to take advantage of online bill payment and direct deposit options. These can help ensure that income will still arrive and bills will still be paid in the event that the parent requires hospitalization.
Following these steps while your parents are still healthy can set the stage for a helpful, ongoing dialogue about money with them -- and greater financial security for your entire family.
