Dealing with aging parents presents many challenges. Making financial plans for the future can come in many forms, and will vary greatly depending on whether you are planning for years in the future or facing concerns that are already on top of you.
When Time Is Available
Obviously, it’s best to make plans well in advance for possible medical expenses, general care and end-of-life costs. The hardest part of this might be just getting started. As an adult child, your roles are reversing, and it’s important to sit down and talk with your parents about finances. While they may resist, even tell you it is none of your business, you need to persist.
Try starting with an approach like, “What do you think about long-term care insurance? Do you think it’s a good value?” or “Do you have a good financial advisor to recommend?” You may need to be more forthright and say something such as, “I’m planning for my future and it made me wonder how you’re set and if I might be able to help you down the road.” Regardless of how you start the conversation, start it. You’ll get nowhere on your journey without a beginning.
Basic Financial Planning
When you have time on your side, a good financial advisor can steer your parents in the right direction. This also will allow them autonomy, being able to make these decisions without you. The best future plan involves “not putting all of your eggs in one basket.” For instance, money should be put into both savings and investments.
Kent Harrison, a retired physics professor, took advantage of his university 401K savings plan, building for the future when a steady income was assured. His advice is to “do the hard thing — save early and often.” He also says, “Get a financial advisor early, someone you know and trust.” Years ago his advisor recommended annuities with a floor. That meant that they would not drop below a certain value. So, if the market drops, you are not drastically affected by it. This piece of advice saved him from losses that deeply affected his friends.
It is also a good idea to mix your investments between conservative and high-risk. Again, this is a protection if things go poorly in a market that you don’t control.
As you are looking into options for your parents, it should become evident that these are things that you should explore. Paula Kriz and her husband recently retired. She said, you need to “start in your 30s and 40s,” making financial plans for the future. Besides having a trusted financial advisor, they practice wise spending. “We would save before we made a purchase,” she says and they learned to “live within our means.” Being on solid financial ground will also make it possible to help out your parents, if it comes to that.
Long-Term Care Insurance
You might talk to your parents about investing in a long-term care insurance plan. There are pros and cons to this. The policies can be very expensive, and if you don’t maintain the payments, all of that money may be lost. Additionally, it depends on the individual policy for what is covered and under what circumstances. However, if one of your parents needs long-term care, the resulting bills can be financially devastating, wiping out all of their retirement savings and impacting you as well. It is something to consider. Weigh the risks carefully before making a decision.
What If The Need Is Now?
When you’re caring for aging parents, often the time is already too late to feasibly consider the above options. Harrison’s wife recently suffered a stroke and needed extensive care. After leaving the hospital, she entered a skilled-nursing facility. They took care of physical therapy, doctor visits, monitoring and care all in one place. But Medicare only covers 100 days in such a facility. At the end of the 100 days, hard decisions needed to be made. He decided to move her back home, hiring various nursing and support staff to come in on a regular basis. Some of these are covered by his health insurance and Medicare, and some are paid out of his own pocket.
What options might you consider in the same situation? If finances are problematic, you can apply for Medicaid. It is federally funded, but state administered, so the program varies from state to state. You would need to explore what the requirements are for acceptance in the state where your parents reside.
A reverse mortgage allows a homeowner age 62 and older to convert some of the equity in their home to cash. The advantage of this over a home equity line of credit is that a reverse mortgage requires no monthly payments. The money is due back upon sale of the home, death of the borrower or the borrower moving, which would include living in an assisted-care facility for an extended length of time.
There are several varieties of reverse mortgages, for instance, state-funded types have stricter guidelines for approval, but offer lower interest rates. The general drawbacks are the high interest rates and potential for the loss of the home for the heirs.
A life insurance policy, bought early and maintained, can help with end-of-life costs. But if it comes to funeral costs, a small policy may not be enough to cover all of it. According to funeral-tips.com, the average funeral costs run $8,000 to $10,000. This includes a burial plot and headstone. The drawback to relying on life insurance to cover this is lag time.
Many funeral homes require at least some money upfront. A check from the life insurance company might not be quite as prompt.