Should the time come, you may need to step in to help preserve your parents' lifestyle and legacy.
Unfortunately, increasing longevity and quality of life do not always work in tandem.
What do you do if – or when – your once-financially-astute parents no longer have the ability to handle their affairs? How can you prepare for a time when they are unable or unwilling to recognize that their mental acuity has declined?
Taking care of one or both of your parents may seem a noble, selfless goal. But it can seem a much loftier ambition when you dive into the reality of the situation. You’ll find yourself making sure that your parents won’t outlive their money while also trying to manage your own finances, all while maintaining control of your personal stress level.
If you undertake this task, keep in mind that managing someone else’s money can be challenging and sometimes thankless work. And if handled less than diplomatically, you may wind up being viewed as overly aggressive rather than appropriately concerned. If you don’t have the time, patience, willingness, expertise and confidence to provide the level and quality of oversight your parents require, you may want to turn over at least some of the responsibility to a financial advisor or other trusted professional.
Whatever route you and your parents – perhaps together with other family members – choose, you'll want to ensure that your parents are receiving all the benefits to which they are entitled, including those from Social Security and any pensions, retirement accounts, insurance contracts and annuities they may have. These benefits should be accounted for in a comprehensive retirement strategy designed to help make sure their lifestyle expectations are in line with their income.
To solidify that strategy, you and/or a financial advisor also need to assess your parents’ income, expenses and net worth – and perhaps bring in other professionals such as doctors or home healthcare specialists to help explore health, emotional and other relevant factors. If your parents are not likely to have enough resources to pay for their own care, then finding ways to supplement their income will become a priority.
Essential issues to address include whether your parents have – and will continue to have – the income they need to meet routine living expenses, whether they have difficulties remembering to pay bills, whether they encounter trouble keeping their financial paperwork organized, and if they (or you) have concerns about whether their assets are sufficient to pay for their needs as long as they live.
In addition, someone will have to decide whether, and for how long, they can remain in their home, or if they need a greater level of care – the kind provided by assisted-living communities, nursing homes, or another housing option.
Don’t forget to look at the sources your parents are tapping for current income. For example, are they using the proceeds from income-generating investments to pay bills or are they accessing their principal to meet their daily expenses? If they are spending down their principal too quickly, the next issue becomes whether they can redeploy their assets to generate more income while still tightly controlling risk.
If your parents have multiple accounts and struggle to keep track of them all, you might suggest that they consolidate those accounts into one or two streamlined accounts and set up automatic payment plans. And while you’re attending to all these matters, keep an eye out for signs of financial fraud. Red flags can include abrupt changes to wills, a sudden change in attorneys or financial advisors, and a tendency to commit funds to complex or obscure securities or ventures.
Make sure your parents also have key documents in order – wills, trusts, long-term care, medical and other insurance policies. Ideally, they should secure all financial documents in a safe place and give copies to trusted relatives or friends. Also, recommend that they designate an estate executor and keep a secure list of usernames and passwords for any online accounts.
If your parents remain in good health, asking for power of attorney may never become necessary – but it can be invaluable if a time comes when you need to make choices without their input.
No matter how compassionate you are, try to avoid tapping into your own assets to help out your parents. Spending funds you've already earmarked for yourself could make a bad situation worse, and it could inadvertently shift the burden for your own future care to other family members – in other words, reinforcing an increasingly difficult-to-break cycle of dependency.
The experience of caring for your aging parents will likely be challenging. But it may also serve as inspiration for you to revisit your own plans for the future. If you don’t have your own up-to-date comprehensive retirement and estate plan in place, there’s no better time to start than now. The following generation will thank you for it.