December 1, 2016
Isn’t it wonderful that medical advances and healthier lifestyles are enabling us to enjoy more time with our parents, grandparents and other family elders?
The average 65-year-old man today is expected to live to age 84, and a woman could live past 86, according to the U.S. Social Security Administration. People with more wealth and couples tend to live even longer. A financially secure, married 65-year-old has a 37% chance of making it to age 95!*
While this is certainly great news, it also presents additional medical and financial planning challenges, especially for those in the “sandwich generation” who are still raising their children and now must also consider the needs of their aging parents.
For many adult children, this management is thrust upon them as their parents’ health suddenly deteriorates or the death of one parent leads to a crisis for the other. It can be a stressful time for children who are trying to balance the need to appropriately insert themselves into the decision-making process while still respecting their parents’ desire for control and independence.
The best way to prepare is to start talking to your parents now, before crisis strikes, about their finances and wishes for their future. Of course, this is a sensitive topic and can be a difficult discussion. While most of us intellectually know we should begin planning for potential long-term care and financial needs, it is often easier emotionally to simply hope for good health and prosperity in the years ahead.
Engaging in this thoughtful process and having potentially difficult conversations today will arm you with the information you need to begin making decisions about tomorrow.
This is when a financial advisor can help. A professional advisor, particularly one who has been working with your family for years, can be the independent party to analyze the situation, identify what needs to be done, and talk through options.
Many things need to be considered. To make the process less overwhelming, I suggest breaking down planning for the decades ahead into three phases:
1. Take inventory
Now is the time to assemble your parents’ finances. This includes determining their required expenses along with current and future income. Take inventory of all their assets, including real estate, investment, retirement and bank accounts. Do they really keep cash in the mattress or cookie jar? (You’d be surprised how many people do.) What about a safety deposit box? Don’t forget valuables and collectibles such as art, jewelry and automobiles.
Make copies of important documents, such as wills, trusts, deeds, mortgages and insurance policies. Know where that safety deposit box key is.
Keep in mind, in this digital age, it’s not just about gathering paper. Make a list of your parent’s online accounts as well, including log-in names and passwords. Of course, you want to keep this information in a secure place, and remember to update it annually.
2. Take assessment
A financial advisor can analyze all the information you gathered to build a base case that highlights what their financial picture would look like if they stay in their home and spend what they are planning to spend throughout their anticipated life. And should they live longer, spend more or earn less on investments than originally anticipated, the advisor can stress test these various scenarios and provide additional insight into the viability of the current financial plan.
Now, you have the foundation to talk about future plans and goals. Do they want to stay in their home? Should they downsize? Would they be willing to move closer to you or another family member? Are they open to a senior care facility? Are they hoping to travel? Would they like to give to charity, and can they afford it?
The hardest part may be discussing the “what ifs.” What if mom needs Alzheimer’s care? What if dad has a stroke? Nobody wants to talk about the worst-case scenarios. But if they are considered in the abstract, while your parents are fully capable of making their own decisions, then you and the advisor can outline alternative plans that you hopefully won’t need.
3. Take action
Once you know the lay of the land and have a game plan, you’re ready to take action. An advisor can make sure all estate planning documentation is in place and up to date. Keep in mind that this exercise is not just about signing a will. For example, have power of attorney and health care proxies been established? Are real estate and other investments properly titled? Have they designated primary and contingent beneficiaries? Should trusts be created? Would long-term care insurance be a good option? Should they start transferring their wealth and make gifts to loved ones now? Do they have preferred charities for donations? What are the tax implications of these decisions? An advisor can help ensure that thought is given to these important considerations.
Engaging in this thoughtful process and having potentially difficult conversations today will arm you with the information you need to begin making decisions about tomorrow. Whether they include looking for a smaller home, researching an exclusive senior care community, or simply saving more money today to meet their lifestyle expectations of the future, these actions can be done more casually, with the heavy weight lifted off your shoulders because everyone knows what is financially possible. You’ll feel more confident and assured with more time to weigh options in partnership with your parents, rather than having to make decisions under pressure.
The best things
President Theodore Roosevelt once said, “In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”
As difficult as it may be, it’s important your family starts the dialogue now, by reminding the seniors you love that this is the best way they can stay in control of their future.
* Source: 2012 Individual Annuitant Mortality tables with no mortality improvement
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