As most young adults make the transition from living at home and going to school, to getting their own place and landing their first jobs; many of their parents are starting to make the transition from working full time to retirement. This can be a challenging time for both parties, but if you arm yourself with the right tools both can be successful.
As a young adult, it is essential that you talk to your parents about personal finance early and often. You want to make sure that they are prepared for what is ahead, so that they can feel secure in their retirement. AARP currently estimates that adult children are providing, on average, $2,400 a year to help their parents in retirement. This could be in the form of care or help financially. Without sounding harsh, here are some simple steps you can take now to avoid spending all your money on your parents later.
Have “The Talk”
The first step is to make sure that you talk to your parents about their finances. Are they prepared for retirement? Are they depending on Social Security? Do they have a budget of monthly expenses, and does their income meet or exceed this?
Many older parents are very quiet about their finances, but it is important that you, as their child, know their wishes and what they want versus what they have. Here is a short list of what you should know:
- Do they have a will, trust, power of attorney, and advanced health care directive? If not, you should remind them the importance of drafting these documents up. You don’t necessarily need to know the details, but you should know where these documents are located in case you need to access them, or you should keep a copy at your house if you are distant from your parents.
- Do they have long-term care insurance or life insurance? If they don’t have long-term care insurance, you should highlight the current costs of long-term care, and ask them if they have enough in their estate to pay for this. If not, it could be a solid investment. And just like a will, you should know where their policy documents are located. Also, you want to be aware of any life settlement investments they may have.
- Where are their bank and investment accounts, and are you, or their executor, listed on the power of attorney? Many couples simply name their spouses as the power of attorney, and never think about it again. As your parents age, it may become important for you to access their accounts from time-to-time. This may be the hardest part of the conversation, but it is good to figure out a plan should they need extra help. Maybe a reverse mortgage could be something to consider.
The talk can be hard to start. You could start by saying “I was thinking about drawing up a will the other day”, or something similar as a lead in to get the discussion going. And even after you’ve had the talk, you need to check in to make sure that any action items are being quickly addressed. The sad thing about life is that it comes at you fast. The longer you wait, the less time you have, and the more things end up costing! And by having these conversations early, you can foster open lines of communication about finance topics going forward.
However, challenging the conversation may be, you will be thankful, in the end, knowing that your parents will be alright financially in retirement! Maybe you will even get an inheritance.
Readers, have you had “The Talk”? Any advice from your experiences? Anything I’m missing?
About Robert
I would recommend establishing a relationship with an elder rights attorney. We used one when my dad looked like he might be in a nursing home longer term following surgery. Turns out he is now home but is battling Alzheimer’s. At least now, there is a plan in place when the time comes for him to be admitted the next time.
That’s a great call. You need to plan for these things before they are diagnosed with something like Alzheimer’s. Once they are diagnosed, courts could dismiss future wills and trusts as not valid since they may not have been able to sign for themselves.
That’s a hard conversation to have, when the roles become switched from child to parent. I’ll have to have it one day with my dad one day, who I now see making some not-so-wise investment decisions.
I hear you on the tough conversation part. It is better to start earlier than later, especially if you already see poor investments occurring. You don’t want him to be taken advantage of.
I told my Mom on Sunday to consider moving to Costa Rica when she and my step dad retire. They have absolutely zero retirement savings. I told them that they can live off social security and be poor in America, or live off the same amount in Costa Rica and be middle to upper-middle class. They are thinking about it. They have about 15 years until retirement.
Interesting…I watch a lot of House Hunters and a lot of retirees seem to be moving there because of the cost of living.
I have never had to deal with this problem. In fact my parents go overboard the otherway. They are always updating us on their situation. It’s good I know but I just don’t need to know that often.
My mother-in-law is very much like you describe. She is almost over-insured because she wants peace of mind for everything.
Yeah, that’s a tough conversation. My dad doesn’t listen to anyone except himself.
I tried that and my mom told me to do a DIY well at nolo and how she does not need a will because Ca says I am her heir. I tried to point out about probate but it did not work. Sometimes you just can’t help.
Sometimes you can’t help…at least you tried. You should get your mom to watch a show like Suze Orman. It seems like every night someone calls in with your exact situation.
Great tips. I helped my dad with some of the math on his recent mortgage refinancing. He asked me which of three options was the best deal for him in the long term.
Way to start earlier rather than later. The more involved you are, the easier it will become!