There’s a good chance you will have to become involved in your parents’ financial lives as they age. Almost half of baby boomers ages 56 to 72 haven’t saved anything for retirement, according to a survey by the Insured Retirement Institute. A majority of boomers aren’t confident they’ll be able to manage health care expenses in retirement. More than half of adults turning age 65 today will develop a disability that requires them to get long-term care, according to the U.S. Department of Health and Human Services. Yet, only 5% of adults ages 55 to 60 have long-term care insurance to help pay for long-term care, and only 11% of adults 65 and older have a policy, according to the Urban Institute.
Although most parents don’t want to be a burden on their kids, they might have no choice but to ask for some financial support. Even if your parents are on top of their finances, they still may need your help, because research shows that financial decision making ability declines with age. You might have to ensure that your parents make financially sound decisions and aren’t taken advantage of by scammers.
But if you don’t have detailed discussions with your parents about their finances now, helping them in their time of need will be more difficult. Here’s how to start the conversation, the information you need to gather, and the steps you can take now if you think your parents will need financial help from you as they age.
How to start “the money talk” with your parents
Talking to your parents about their finances might seem difficult because you don’t want them to think you’re being nosy, greedy or disrespectful. Most likely, your parents won’t think any of those things if you let them know that you want to talk to them because you’re looking out for their best interests. To ease into the conversation, here are a few strategies you can use:
Use a story
You could share a story about friends or colleagues who had to get involved with their parents’ financial lives. You could talk about how difficult it was for them because they hadn’t talked and planned with their parents before they had to step in and help. Or you could share how advance planning made things easier for your friends. Either way, the story should illustrate the need for having money talks sooner rather than later.
Ask about “what if” scenarios
A key reason to talk to your parents about their finances is to be prepared for emergencies. So you could simply ask your parents what would happen if, say, they ended up in the hospital and you needed to make sure their bills got paid. Let them know you’d like to create a plan with them for dealing with worst-case scenarios.
Ask your parents for financial advice
Take an indirect approach to getting your parents to open up about their finances by asking for their advice about your finances. For example, you could tell them that you can contribute to a retirement savings account through work and are wondering how much you should be saving. Their response should give you clues about what sort of retirement planning they’ve done. Keep the conversation going by asking them to share more details about their planning.
What to ask your parents about their finances
You might need to try a couple different approaches to get your parents to open up. As you attempt to have these conversations, remember to be respectful and patient. Give them time to get comfortable with the idea of discussing a topic they might consider taboo.
You might need to try a couple different approaches to get your parents to open up. As you attempt to have these conversations, remember to be respectful and patient.
When they’re ready to talk, make sure you ask the following questions:
Do you have estate planning documents, including a will, power of attorney, and advance health care directive?
Estate planning isn’t just for the wealthy. Everyone needs these documents. If your parents don’t have wills, their state laws and a judge will determine who gets their assets. And power of attorney and advance health care directive documents let them name someone to make financial and health care decisions for them if they can’t.
Your parents must be mentally competent to sign these documents. If something were to happen to them – say a stroke – and you needed to access their bank account to pay their hospital bills or talk to their doctors about their treatment, you couldn’t unless your parents had already named you their power of attorney and their health care proxy. You’d have to go to court to get the legal right to make financial and health care decisions for your parents – a process that can cost thousands of dollars.
How do you pay your bills?
At the least, find out whether your parents have their bills set up to be paid automatically or if they write checks for them. If possible, get them to make a list of all of their bills and how they are paid. They can hang onto the list, but they need to tell you how to access it in case of an emergency.
The more details you can gather about their finances – everything from what sort of insurance policies they have to the debt they owe to the types of investments they have – the better prepared you’ll be if you have to help them with their finances as they age. You could ask your parents to include this information on their list of bills.
What are your plans for retirement?
You might have more luck getting your parents to open up about their finances if you start with a more general question about what they expect their retirement to be like. Once they start sharing their plans, gently press for more details about how they plan to fund their retirement. Ask if they have guaranteed sources of income — such as a pension or an annuity – or if they have a 401(k) or similar retirement savings account.
You might have more luck getting your parents to open up about their finances if you start with a more general question about what they expect their retirement to be like.
If they’re counting only on Social Security, you can help them create a my Social Security account online at ssa.gov/myaccount to find out what their monthly benefit will be. The average monthly Social Security benefit is just $1,471, which might not be enough for your parents to live comfortably. They can boost their monthly benefit by waiting past their full retirement age to collect benefits. However, if you sense that your parents will be struggling financially in retirement, you might want to consider whether you’re willing and able to help them out if necessary.
Do you have a plan to pay for long-term care?
As mentioned already, more than half of adults 65 and older will need long-term care at some point. That means there’s a good chance at least one of your parents will need help with bathing, dressing, eating, using the toilet, and managing money because a health condition will leave them unable to do these things on their own.
Long-term care can be very expensive. More than a quarter of Americans turning 65 will have long-term care costs of at least $100,000, according to the Bipartisan Policy Center. Considering that Medicare doesn’t pay for long-term care and most Americans aren’t prepared to pay for this cost, most people tend to rely on family or friends for help. So you need to find out if you are your parents’ long-term care plan.
How to help your parents prepare
Talking to your parents about their finances should give you insight into whether they have essential estate planning documents and a plan for retirement. If they don’t, encourage them to take the following steps. As you do, though, don’t appear to be condescending about their lack of planning. Reassure them that you just want to help.
Encourage your parents to meet with financial and legal professionals
If your parents need help planning for retirement, they can find a financial planner through the National Association of Personal Financial Advisors’ directory at NAPFA.org. If they have limited income, they might be able to get help from the American Association of Daily Money Managers, which has members who volunteer their services.
They can find an estate planning attorney through the National Association of Estate Planners and Council’s database at NAEPC.org. Ideally, they should meet with an attorney to have estate planning documents drafted. But there are lower-cost options available online through services such as Trust & Will and LegalZoom.com.
Help your parents plan for long-term care
If your parents are in their 50s or early 60s and in good health, they could qualify for long-term care insurance – which helps pay for care at home, in an assisted living facility, or in a nursing home. The average annual premium for a 55-year-old couple is $3,050, according to the American Association of Long-Term Care Insurance. Your parents can find a long-term care insurance broker through the association’s website at aaltci.org.
Other options for paying for long-term care include a life insurance policy with a long-term care benefit that can be accessed if long-term care is needed (otherwise, beneficiaries will get a payout on the policy holder’s death). Or your parents could make a lump-sum payment to buy an annuity that will provide a guaranteed stream of income over a specified period of time. There are annuities that are designed specifically to provide long-term care benefits.
If they have limited resources, your parents might qualify for Medicaid. This government program is the top payer in the nation for long-term care services. It pays for care in skilled nursing facilities and at home, but typically doesn’t cover care in an assisted living facility.
Help support your parents
If you think your parents will need financial or caregiving help as they age, there are steps you might be able to afford to take now to help. For example, you and your siblings might want to pitch in and buy long-term care coverage for your parents.
If longevity runs in your family and you suspect your parents might outlive their savings, you could help support them with a product such as AgeUp. For as little as $25 a month, you can buy this deferred income annuity issued by MassMutual that can be converted into a stream of income for your parents between ages 91 and 100.
Your parents must be ages 50 to 75 at the time you purchase an AgeUp annuity. You can opt for an annuity that will return 100% of the money you pay if you or your parents die before their payout age. To find out the projected payout you can get for your parents based on the monthly payment you can afford, use this calculator.
You will be able to take steps such as this to help your parents financially by having family money talks sooner rather than later. Don’t wait to have these important conversations.
Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. She also is an award-winning journalist who has been writing about personal finance for more than 17 years. You can learn more about her at CameronHuddleston.com.