Does your retirement plan include your parents? It probably should. Chances are good that they are counting on you to handle their affairs if they die or become incapacitated. How confident are you that you have everything you need to handle that role effectively? Do you know their wishes regarding life-prolonging care? Have they given you power of attorney? Will they have adequate resources to pay for the cost of their care?
Many parents are reluctant to discuss these things with their children because they think they are private matters, they fear losing control, or they want to appear to have it all together. Be sensitive to that, but don’t let it keep you from starting the conversation because the stakes are high.
A recent study by MetLife found that there are nearly 10 million adults over age 50 caring for their aging parents.1 The study estimates the potential costs for caregivers (in terms of lost wages, pension and Social Security benefits) to be around $3 trillion or an average of $300,000 per caregiver. Many risk putting a significant dent in their own retirement plans if they haven’t properly planned for how to help mom and dad.
The sooner you begin talking and planning, the easier it will likely be on everyone involved. Helping is much more difficult after a crisis, so start talking while your parents are still healthy and active. Here are five steps to cover as you work through the process.
An easy way to begin the conversation is to talk to your parents about the planning you have done for yourself. Be transparent about areas like your finances and legal affairs and ask their opinion on your situation. Then ask them about their planning and what role you might play in helping them as they age.
Be sure to communicate that any involvement on your part would be gradual and based on their needs. You aren’t looking to take control of their affairs, but simply want to understand their situation so you can be an effective advocate for them if they ever need your help. Make clear that you are just the understudy and you won’t step in to help unless or until they need you.
Once everyone is talking, it’s time to review your parents’ current state of affairs.
- What are their current assets and liabilities?
- What accounts do they have at different banks or investment firms?
- Who are their key financial and legal advisers?
- Do they have a will and powers of attorney?
- Do those documents reflect their current wishes?
- Where do they keep important documents?
- How is their health?
- What doctors do they see and what medications do they take?
- Do they have long-term care insurance?
By asking these and other questions, you will get a broad overview of their affairs and be in a better position to not only offer assistance, but also spot potential problems.
If the Review stage uncovered any holes in your parents’ planning, now is the time to fix them. Pay particular attention to five key areas:
- Legal documents
- Living arrangements
Work with your parents and their advisers to make sure that all bases are covered.
Here is a simple checklist of key points to consider for each area:
- Make a list of all accounts and where they are held
- Get contact information for their advisers
- Consolidate and simplify accounts where possible
- Make sure the accounts are titled correctly
- Offer to sit in on a meeting with their financial adviser to review investments, make sure the asset allocation is appropriate and make sure there are adequate resources to support your parents’ lifestyle
- Review Social Security benefits
- Make sure all beneficiary designations are up-to-date
- Streamline bill paying
- Make a list of all insurance policies (life, health, long-term care, etc.) and where they are located
- Get contact information for their insurance advisers
- Offer to sit in on a meeting with their insurance adviser to see if a long-term care insurance policy would be appropriate
- Review homeowners, auto and umbrella liability insurance to make sure they are adequate, appropriate and up-to-date
- Review health insurance coverage and consider whether it would be appropriate to add a Medigap policy to pay for costs not covered by Medicare
- Do they have a will or estate plan?
- If so, does it reflect their current wishes (i.e. does it pass property to the correct people and have the correct people taking charge)?
- Do they have an up-to-date durable power of attorney for finance?
- Do they have an up-to-date durable power of attorney for health care?
- Does their health care power of attorney contain a health care directive that spells out their wishes for life-prolonging care?
- Is the current housing situation suitable?
- Do any changes, updates or modifications need to be made to the house?
- Have they made contingency plans for illness, disability or death of a spouse?
- Is there money available to pay for those contingencies (e.g. savings or long-term care insurance)?
- Make a list of their doctors as well as any medications they are taking
Help coordinate benefits between care providers and insurance companies
Once the initial planning is done, get it organized. People usually need important documents during painful or stressful times. A will is needed after someone dies. A medical power of attorney is needed after someone has become incapacitated. Having everything organized will not only minimize stress, but it will also help those in charge to make informed decisions during difficult circumstances.
Helping a parent is typically a gradual process. Once the initial planning is done, keep the lines of communication open. If they need help in a certain area or with a particular task, you will be there to lend a hand. As they need more help, you can gradually implement the planning that you did with them previously.
Becoming a parent to your parent is never easy, but you owe it to both them and yourself to get things in order. Proper planning will give peace of mind, help avoid family conflict and minimize the financial impact on everyone involved.
FPA member Joseph R. Hearn is the Vice President at Teckmeyer Financial and author of the books If Something Happens to Me and The Bell Lap: The 8 Biggest Mistakes to Avoid as You Approach Retirement.