Caring for Retiring Parents
Most of my clients fall into a younger demographic by design, which means that I frequently get the question of how to take care of aging parents. We would of course prefer that all financial aspects be taken care of as our parents enter retirement, but it’s often far more complicated and may require your significant involvement in making sure the process works smoothly. While there are some support systems for those of retirement age like Social Security and Medicare coverage, life can be unexpected and bring unexpected costs. To that end, I wanted to discuss some of the top issues to be aware of as you care for your aging parents.
The biggest question when discussing aging parents is always “is there enough money to support them in retirement?”. Everyone has a different situation, so some of you won’t have to do much in order to help out and others will have to be substantially involved. A great first step is to identify what the income sources are for your parents and figure out how much each of them will be contributing in retirement. A typical situation may include the following sources of income:
Social Security- Most of our parents are in the generation that will have Social Security available to them, which can not be said about our generation.
Retirement Accounts- Make sure you’re aware of any retirement plans your parents have, such as 401(k)s, 403(b)s, and IRAs.
Property- If your parents own their house there could be some equity accrued.
Cash- Don’t forget about bank accounts to make sure you’re aware of their full financial situation.
Once you have an accurate sense of what you’re working with it’s time for the budgeting.
When budgeting for retirees, it’s always best to budget conservatively as it is far better to have money left over than to run out early. When people hit retirement age of 65, it can be best to use an extended life span just to make sure that they will not outlive their budget. Everyone’s views of what they want retirement to look like are different, so it will be up to your parents to decide what shape they want their retirement years to take. Proactively budgeting will allow them to understand how to take advantage of the newfound free time without putting their plan in jeopardy. By following the 4% rule of retirement withdrawals you will get a clearer sense of how to effectively structure retirement spending. This will also allow you to put in a place a plan that doesn’t have parents relying on you to support them in retirement.
The next big question is about healthcare and making sure your parents are taken care of if something were to happen. Many people have healthcare coverage through their employer, so when it’s time to retire there’s a big gap that needs to be filled. As parents hit retirement age they will qualify for Medicare, but there can be a big difference between medicare plans which makes it crucial to be aware of their specific plan. There is a wealth of information out there on the different medicare plans which I won’t go into detail here, but in this situation google is your friend. Being aware of what is covered and what is not will be a huge help as you work with them to make sure they are taken care of in retirement.
Another major component to make sure healthcare is covered is looking at long term care insurance. Perhaps you yourself have been approached by an insurance salesperson offering long term care and noticed how expensive it can be. For those who have no experience with this type of policy, it basically helps cover costs for those with long term diseases or disabilities and can include help with daily activities and medical or non-medical services. The department of health says that someone turning 65 today has a 70% chance of needing some type of long term care services despite the fact that most people around that age don’t have long term care insurance. Expenses related to long term care add up very quickly, so if you plan to skip the insurance be prepared for a hefty self insurance price tag. Once you’ve got the budget and retirement accounts and income streams figured out, and have a handle on the medical coverage, it’s time to look to estate planning.
Estate Planning and Financial Access
I cannot stress enough the benefits of working with an estate attorney, and if you’re looking for recommendations just ask and I’ll be happy to refer you. Many people take the view of “I’ll write my will and call it good” but given the amount of things that can go wrong when it’s time to transfer the estate, it is worth working with a professional. A will can direct your assets where you want them to go, but it will still go through probate which can take far longer than you’d like. By creating a living trust, you’ll be able to avoid probate and make sure everything is carried out efficiently. This will also give you a chance to determine who should have power of attorney for financial and healthcare related issues and make sure that everything is set up the way your parents want.
To go along with estate planning, it’s critical to have access to financial documents and records. If you are given power of attorney over your parent’s finances, would you know how to log into their accounts? Would you know where to find their statements? Would you be aware of the bills they pay and know who does their taxes? These are a few questions that can be easily overlooked until it’s too late and you have to scramble to make everything work smoothly. It’s far better to plan ahead and get all of this taken care of before there’s a need for it.
Obviously every situation is different and some or all of this may not apply to you, but this is something you will likely have to deal with as your parents enter retirement. This is a perfect example of an ounce of prevention is worth a pound of cure, as having these conversations early and putting things in place can save tons of headache down the road. If you are getting ready to face this situation and want some advice, reach out to me and we can discuss how to plan around the pitfalls.