Watching the people who raised you start to decline physically and mentally is never easy. But as your parents age, their financial well-being may become a concern. Financial to-dos are often one of the first things to be overlooked when a parent encounters physical or mental difficulties.
So as your parents age, keep an eye out for signs indicating they need help managing their financial life. Helping parents is an inversion of the long-standing child-parent relationship, so the transition may be challenging for you and your parents, and you should be prepared.
Here are a few steps to get you started.
Broach The Conversation With Care
Talking with your parents about their finances can be a delicate situation. Older generations are often guarded about their wealth and consider it a private topic. Even couples who’ve been together for decades may be uncomfortable discussing household finances. So, getting a parent to open up to their adult children about their financial standings may initially be a bridge too far.
While the situation may initially yield little progress, be patient and consider the conversation from your parents’ point of view. If there are things you’ve observed, tactfully ask about them.
Do you notice more unopened mail than usual? Is their voicemail full, or are they having trouble accessing their account online?
How to Start a Dialogue
You can begin with high-level questions if and when your parents are open to discussion. Ask what’s most important to them—maybe leaving a sizeable estate to grandkids, moving closer to loved ones, or simply feeling secure that they won’t run out of money. Find out who, if anyone, they have assisting them with their finances. They might be willing to make introductions if they have worked with an accountant or advisor.
At every point in the conversation, remember to respect one another’s boundaries. It may take time, so allow your parents to dictate the speed at which you move forward.
Get an Overview of Their Financial Picture
It’s not unusual for accounts to be scattered across various brokers, managers, and banks. To get an idea of their complete financial picture, take stock of as much as possible.
Accounts: Write down pertinent information, including:
- Type of account
- Where it’s located
- The present value
- Any required distributions (these are typically associated with retirement accounts like IRAs and 401k plans)
- How to access the account (passwords, PINs, etc.)
Financial Professionals: Next, if you have your parents’ permission, get in touch with any professional who plays a role in your parents’ financial life, including financial planners, insurance agents, attorneys, and CPAs. Introduce yourself and let them know you’ll be assisting your parents in keeping their financial matters on track.
If possible, schedule meetings to go over the specifics of each professional’s role and ask clarifying questions. You’re the newcomer to a pre-existing relationship, so tact can be helpful. Still, if your parent or parents are bringing you in because they need and want your help, you should have your questions answered and feel comfortable with the approach being taken.
Debts: High-interest debts like credit card bills or personal loans compound quickly when unaddressed. Are your parents paying on time, or are they continuously accruing more interest? Paying down high-interest debt should be a priority, especially if an account is past due. In addition to credit card debt, ensure you’re keeping track of mortgages or other debts your parents have.
Insurance: Evaluate your parents’ current coverage. Does it reflect their needs, or could they benefit from adding or removing policies?
For example, they may no longer need a life insurance policy, but a long-term care policy might be worth considering if your parents are younger and wouldn’t face issues with underwriting. A recent study shows that most Americans over 65 will need long-term care at some point in their life.
Implement Automation and Use Online Bill Pay
There’s hardly anything that you can’t do online. If your parents are open to your help, set up automatic bill pay for bills for which the amount doesn’t vary, like mortgages and insurance premiums. If you notice mail piling up and bills going unpaid, paperless billing is an effective way to cover those bills for which the timing or the amount varies. Lastly, if your parents own their home, ensure they’re also paying their property taxes.
Update Proper Estate Planning Documents
As a rule, you should know where your wills and powers of attorney are before they are needed, and you should make sure anyone authorized to act on your behalf in those documents should know as well. The same rule holds for your parents, and if you’re named as their executor or agent on a power of attorney, check with your parents to confirm they know where the documents are located. Even if you are authorized to act in any of the documents, a gentle reminder to your parents to make sure the documents are updated might be helpful.
The most common estate documents are:
Other estate planning items to review include:
- Financial power of attorney
- Medical directive
Beyond standard documents, your parents will also want to confirm that all beneficiary designations are up-to-date.
Gain Access To Certain Financial Accounts
In some cases, elderly parents may benefit from adding their adult children as joint owners on checking, saving, or other bank accounts. This is especially useful if they rely on you to help pay bills or access credit card statements. There can be tax and estate implications, so be sure you understand what these are, particularly if the account your parents added you on has substantial value.
Understand Your Financial Role
While helping your parents get organized now, what role will you continue playing in their financial life? Are you prepared to assist financially, or can they remain independent?
If you’re concerned your parents are living above their means, look at their monthly budget and spending habits to help determine if they can cut any discretionary funds—eating out, shopping, unused subscriptions, memberships, etc.
You may also want to talk with your siblings to determine a plan together. Would your parents’ expenses be taken care of if everyone chipped in every month? Or, should your parents move in with one of you to help save on living costs?
Consider working with a professional to address any concerns regarding your parents’ spending in retirement. Our team is happy to help you and your loved ones ready your finances and develop a plan.
Remember, It’s a Transition
As mentioned, helping your parents with their finances may take time, and you won’t get all your questions answered in one conversation. But the key is to plan before it becomes a critical issue for you and your parents. If you and your parents feel that professional assistance would be helpful, please do not hesitate to reach out to our team.