When my parents retired a few years ago, I assumed they had all the necessary financials in place for their future. I didn’t ask questions or look into the specifics, after all, they had plenty of experience taking care of themselves. However, as I recently watched the stock market spiral downward and saw the coronavirus’ impact on my own portfolio and 401(k), I began to wonder whether any of us were prepared for a once-in-a-century financial crisis of these proportions. It was time for me to have a financial discussion with my parents about money – both mine and theirs – and what we need to do to help one another.
Financial discussions are critical for the sandwich generation
Financial conversations are crucial, particularly for adults in the so-called sandwich generation, sitting between young children and aging parents, needing to ensure financial stability for both. A recent Haven Life survey of this group found that 43% currently assist their parents financially or provide physical care. Nearly 60% expect to financially support their parents or in-laws as they continue to age.
Despite this, talking about money can be taboo, even within the closest families. Older parents may resent the intrusion, and their children may not want to worry them. So how do you start a money conversation, setting the right tone and facilitating a candid financial discussion?
Kay Bransford, Daily Money Manager at MemoryBanc provides some advice for breaking the ice. “I suggest people start by asking their parents if they would help them. ‘If I get sick (or me and partner), would you be able to follow these instructions to help keep the household running?’ Then provide a guidebook to finances and bill pay. Include copies of the estate plans and powers of attorney. After YOU do this, it is much easier to begin the conversation with your own parents.”
Cash is king in the short term
Once you’ve started the conversation, according to Kevin Mahoney, CFP and CEO at fee-only financial advisory Illumint, the key retirement question for adult children to ask right now is: “How does the current economic situation compare to the worst-case scenario for which you planned as part of your retirement?” He adds, “Many retired couples will have some amount of cash or cash equivalents available to use for short-term spending needs. This cash should prevent them from needing to tap investments during a temporary market downturn. Long-term problems could begin to arise, though, if parents don’t have enough cash to offer them spending and withdrawal flexibility in the months ahead.”
You should also ask your parents about their savings situation even if you know they have a pension. Andrew Roderick, CEO of Credit Repair Companies explains, “This is important, as many pension funds will be hugely affected by the recent economic downfall.”
Planning for the longer term
Once you’ve discussed day-to-day expenses, where to find necessary documentation and addressed any cash shortfalls, you should turn your attention to longer term planning. Thanks to rising healthcare and assisted living costs, not to mention the complexities of investment portfolios, longer term planning is far from simple. Nicole Middendorf, CEO of financial advisory firm Prosperwell Financial, suggests, “Enlist the help of a third party. Your parents may be more likely to discuss their finances with you and let you help them if a third party such as an accountant, wealth advisor or estate attorney suggests they do.”
The good news is that if your parents have a diversified investment portfolio, they may not be as hard hit. James Soukup, Wealth Management Advisor with Farm Bureau Financial Services, explains, “If you look at equities (stocks), your account has undoubtedly taken a hit. It could be quite substantial depending on the makeup of that portion of your portfolio. [However,] your bond portion of your portfolio could very well be up at this point… As a source of guidance, I would recommend seeking out a financial advisor who is a Certified Financial Planner. These are professionals who meet rigorous education, training and ethical standards with a fiduciary obligation to serving their clients best interests.”
Middendorf also recommends financial discussions around life or care insurance. “The cost of a private room in a nursing home keeps increasing. Long Term Care insurance helps pay for the costs associated with long term care such as a nursing home or assisted living facility.”
Protecting your parents from stress and scammers
Stacy Miller, Partner with Bright Investments, highlights the urgency of starting money conversations now, rather than waiting until you can see parents face-to-face. “An open dialog on finances, while often uncomfortable, can help you find gaps, see stress points, and even discover nefarious activity. Unfortunately, the quarantine and isolation have brought out the scammers in full-force, and seniors can be an easy target. Knowing in advance where all the documents are, who’s advising your parents, and how they’re managing their finances, will give everyone peace of mind.”
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