Financial Intervention With Aging Parents

Money, Senior Citizens, Financial InterventionAs parents, adults so often discuss what is wrong with kids these days. The younger generations are too wrapped up in video games and Facebook, they have little work ethic, or they are disconnected with politics.

Sure we can complain about all kinds of things that we think our children are doing wrong… just like our parents did with us.

When it comes to finances however, it just might be the kids that need to do something about the adults.

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The University of Michigan conducted a survey in 1996 of people over the age of 50 and their progress toward retirement. They found over one third of respondents had saved nothing toward retirement. Of those that saved, the average was only 3% of their average income in the preceding decade.

What’s the impact?

Poverty among senior citizens may be as high as 19%! This will certainly have an impact on government safety net programs such as Medicare as fewer seniors can afford to cover their basic living expenses let alone exploding costs of health care.

There is also the potential impact upon adult children. While too few have adequately prepared for their own retirement, more and more are faced with financial liabilities of their parents.

Retirement calculators do not factor these costs, yet the can be huge. In 2007 the New York Times reported that the average out-of-pocket expense to care for an elderly parent was as much as $8,728 per year based on survey of 1,000 adults that are providing some care for parents age 50 or older. Only 2 of those surveyed had spent nothing. The remaining 998 were spending an average of 10% of their income.

Is it time for an intervention?

Frankly, it is pleasing to think that family is taking care of family. It is the right thing to do, but must it be this way? Our aging parents had an entire lifetime of opportunity to plan for their eventual retirement in most cases and could have properly prepared themselves.

Unless you are already faced with this situation, it may not be too late to limit or prevent the impact of parents with poor finances. It might be time for a financial intervention.

Talking money with parents has been a forbidden subject for many, but this doesn’t mean it must always be. As responsible adults we owe it to ourselves, our children and our parents to address uncomfortable subjects. How do we do it?

Breaking bread and breaking the ice

We have to start somewhere. Sitting down for a meal, when all are relaxed may be the best place to start. But don’t start by intruding on their situation, share your own. Explain to your parents what you have or have not done to prepare for your retirement. Share with them “your number” and how to calculate the resources necessary to finance your retirement.

Odds are that your parents will be proud of your responsibility and forethought. In most cases a few questions may be prompted by information you share. It is likely that they may then volunteer what they have or have not done.

Write a letter

No parent wants to be a burden upon their kids. If they are still reluctant to discuss their financial position, its likely because they know they are facing challenges. Another approach might be to write to your parents. Let them know their future is important to you. Share with them how much you appreciate everything they have done for you and your desire to return the favor.

Define the situation

Once you get your parents to open up, it is time to establish a clear understanding of their situation. Start with development of a financial inventory listing all their assets, liabilities, accounts and contracts.

Make sure all legal documents are up to date an in order including wills, power of attorney, living wills and insurance papers.

Planning

Once you have a clear picture of their current situation it is time to work with them on a sustainable living plan.

Establish a budget with your parents if they have not done so to make sure they continue not only to live within their means but also to ensure that their assets survive their lifespan.

Consider the rising cost of health care and potential impact of unexpected events. Clarify your parents preferences of how they are to be treated as they lose their physical or mental abilities.

Conclusion

Dealing with aging is a challenge both financially and psychologically. None of us want to deal with the inevitable mortality of our parents but taking the time to plan and prepare now will ease the emotional strain and financial burden in the future.

Readers: For me this is a first to consider, but before long it will be something we have to face. What other advice would you share to deal with aging parents?

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photo by Ethan Prater


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19 comments to Financial Intervention With Aging Parents

  • This is a tough subject to go into, not because of the actual dollars, but rather the relationship between parent and child
    .-= Evan´s last blog ..What is Valuable May not be Worth Anything – Which Do you Want? =-.

  • Hmm. . .This has been a sticky (powder keg!) topic in the past in my family. But now that I live overseas, writing a letter suddenly seems very doable. hah!

    I like the idea of sitting down with a family attorney or financial planner actually for dealing with how some of this stuff is to be handled. I feel that the presence of a competent and neutral third party would possibly make it easier for parents to accept advice. Is it just me or is it hard to advise parents of anything?!
    .-= Simple in France´s last blog ..Sustainable, recession-proof restaurants near you? =-.

  • LLC,
    A couple of thoughts about this difficult subject:

    1) Many times this issue doesn’t come up ’till one of your parents has dementia, or Alzheimer’s-making any power-of-attorney or Will changes much more difficult-so the earlier the conversation the better…

    2) If there are several adult children involved, they need to get on the same page quickly, or family feuds can be devastating as one thinks the other is taking advantage of mom or dad.

    PS-I have had a draft post in my que for a couple of weeks now on this same subject-will link back to this when I post. (Great minds think alike:)
    .-= Dr Dean´s last blog ..Great Personal Finance Reads =-.

  • My parents are pretty open with me and willing to let me help them. Of course they know I’m a “finance guy” so that makes it a little easier.

    I do agree though that for most people this would be quite a taboo subject to discuss.
    .-= Tom @ Canadian Finance Blog´s last blog ..What is Financial Literacy? Part 2 =-.

  • The LeanLifeCoach

    @Evan – No doubt, but avoiding the subject may prove much more costly; financially and emotionally.

    @ Simple in France – Lucky! You ran away. 🙂 – You make a great point about a third party. For some though, I imagine a third party would make it even more difficult to open up. No doubt each situation is going to be different.

    @ Dr. Dean – 1) This is why I am thinking about it. I saw what happened with grandparents and I want to be a little more prepared. 2) Herein lies my problem. My siblings and I have little chance of agreement. All the more reason to figure it out sooner rather than later. I’m looking forward to seeing what you have!

    @ Tom – I didn’t have that luxury but I did learn from the experience. My kids have been introduced to money discussions since they could talk. Nothing will be taboo in this family.

  • Thankfully my situation is like Tom’s. My parents are also open with me, and I suspect the fact that I am a “finance guy” also makes it easier.

    @LLC When we have kids they will also be introduced at a very early age. I really wish my parents and my wife’s parents had taught each of us more about money. At this point we have far less debt than both sets of parents. Luckily we’ve been able to share what we’ve learned relatively pain free and they are now working on becoming debt free as well.
    .-= Derek @ ChristianCommonCents´s last blog ..Never Loan Money To Friends and Family =-.

  • I am very fortunate that I have a sister who lives in the same town as our Mom and voluntarily keeps track of Mom’s finances (Mom is 90). Sis does a great job of keeping us in the loop without giving too much information.
    I agree with this post that communication, though it could be dicey, is better than the alternative: no communication. I am a bit skeptical about the letter idea though, because there is no live give and take. A letter, if not written perfectly, could explode. Has anyone else tried the letter idea? How did it go?

  • *sigh*
    Since my mother reads my blog, it is my hope she jumps on that bandwagon. But it is not working. I have tried to talk money indirectly, but it does not have a lasting effect. She plays ignorance and knows she is putting it on my sister and I to take care of her. She spends freely. In fact, this year she owes a few grand on her taxes because she decided to claim 9 through out some of the year. I cringe. I don’t know what to do.

    I told her about my family setting a Hawaiian trip and she should save to come with us. But when she told me about her taxes, I knew she was not coming. Now she is mad at me that our family is off on our excursion. Does she not realize (or read via blog) that we work our hardest to do these things? They do not come freely to us. This is my first real vacation with my children. I am proud of my accomplishments, as i should be. But my mother’s dark cloud looms over to make me guilty. *sigh*

    I would have imagined the percentage to be higher.
    .-= Money Funk´s last blog ..Great Giveaways by PF bloggers =-.

  • The LeanLifeCoach

    @ Derek – I often joke about it but it is true. My kids learned about saving before they learned table manners. Unfortunately we are still working on the table manners!

    @ Joe – The letter is just another idea in the event a conversation goes awry. No doubt it could go wrong, but trying anything is better than doing nothing.

    @ Money Funk – I know it’s not easy, but we should never feel guilt for someone else’ decisions. We have family members that tend to spend more than save as well. Its not guild I carry, its fear. Fear that their poor decisions will end up undermining all the hard work we have done to put ourselves in a better position. No doubt, you will have to deal with your mother’s finances sooner or later. For now…. go have a great vacation!

    The 10% is out of pocket. Reading between the lines I am thinking that there was some money from the parents, social security and welfare as well.

  • My parents, I don’t have to worry about, they are much wealthier that I will ever be.

    My wife’s parents are not doing as well as I am, but better than most. Unfortunately, they are also touchy about money matters. They are the type that will spend thousands to save a few hundred. Both are smart people, but not so good with finances. I can’t judge them too harshly though, neither went to college, so they didn’t have any type of financial training.

    One big mistake I think my wife’s dad made was to retire at 62… He’s still in good shape, and to retire early when your finances don’t add up, isn’t the best financial move in my opinion. But again, I can’t really talk to them like I could my parents… Oh well 🙁

  • The LeanLifeCoach

    @ MoneyReasons – Your situation is similar to the thought that inspired this post. I know I don’t want to be a financial burden on my kids in my old age. I cannot image our parents would want that either. So if they need help, shouldn’t we intervene?

  • It’s tough tough tough Greg-san. My parents worked for 30+ years each, and have a pension paying them 60%, and 80% of their last year’s salary thank goodness. They also have no debt, so they are fine.

    My worry is my in-laws who didn’t do so well. But, I will be there for them financially if they need me.

    Maybe we should talk to our parents when we are in our early 20’s… but it’s too hard to say since we donno what we’re doing ourselves.

    Sam
    .-= Financial Samurai´s last blog ..Insuring The Uninsured Is Worth It =-.

  • The LeanLifeCoach

    @ Samurai – Maybe if there were more conversations about money we would all be better at managing it. I’m sure we will all do what it necessary to help out family in need, but I really want to prevent the need.

  • The LeanLifeCoach

    @ Joe Plemon: – I can’t tell you how much I appreciate your challenging question. You and Simple in France inspired me to find a way to write a letter to mom and dad.

    The letter got great reviews from everyone with the exception of my wife.

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