Long-Term Financial Planning: How to Talk to Your Parents About Their Finances

So, How Are Your Parents’ Finances?

When it comes to your own finances, you spend plenty of time planning, managing, and staying on top of long- and short-term goals. That same diligence, however, probably does not extend to the financial situations of your parents, siblings, or other close family members. We’re always taught to mind our own business when it comes to other people’s money, but close relatives’ financial planning — or lack thereof — can affect your own financial situation down the line.

The statistics show that the average 50-year-old has less than $50,000 saved for retirement.  This indicates that even if you have been socking away enough money for your later years, your close family members may not be so prepared. That financial responsibility then can suddenly fall on you — and quicker than you think.

Personally, one of my family members’ retirement funds were mismanaged, and I — along with the rest of my family —  had to scramble to come up with a Plan B. I also know many 40- and 50-somethings who now have to pitch in to support parents who are unable to live on their Social Security checks alone. I’ve seen this support range from a few hundred to a thousand or more dollars each month. Ponying up this type of money impacts your own budget big time, but what other choice do you have? You can’t exactly leave your elderly parents or retired siblings hungry or homeless.

That’s why it’s important to start an open dialogue with your parents and other close family members who could eventually need your support about their financial plan sooner than later. I have had clients tell me that their parents would never share their financial details with their children, or that they are uncomfortable to even ask. Unfortunately, if your parents run out of money, you may become acquainted with every intimate detail of their financial situation, possibly even paying bills and managing their day-to-day finances. If you are close enough to a family member that you would feel financially responsible for them if things went south, then they are a family member with whom you should start a financial dialogue.

Even if you think your parents are well-off, you should do some fact checking. I’ve worked on thousands of financial plans in my past corporate life, and have seen behind the curtain where a surprising number of clients lived in luxury homes and drove cars they could not afford, sent their children to private school, and yet had very little saved for their retirement. The appearance of being “well-off” — in too many cases — means living beyond your means, and having little left to put toward savings. Even if your parents are comfortable, do they have a plan if someday they need long-term care? Would they go into an assisted living facility, or are they assuming that you, their responsible child, will take care of them? In either case: who foots the bill?

How do you start? Like anything trepidatious, it begins with a small, simple step. Tell your family member that you read this article, and though it never occurred to you to have this type of conversation, you’d like to start now. What do they think? Would they be willing to start slowly opening the doors to their financial situation and let you in? Would they be relying on you if they had to — for financial and/or general assistance as they age? Are you prepared for that? These are some questions that you can start answering together.

If your parents do not already have one, you may want to involve a Certified Financial Planner Professional™ or other expert to help assess the situation. Many work on a one-time or hourly basis. Although the ideal scenario is that your parents have a financial plan in place before pulling the trigger on retirement, a professional can still help suggest viable options even if your parents are already retired.

To help guide a productive conversation, here are some questions you can ask:

  1. Do your parents have an estate plan? Who is the executor?
  2. If married, what is their plan if one parent predeceases the other?
  3. Do they have a power of attorney, and medical power of attorney?
  4. Do they have wills, living wills, and a trust?
  5. Do they have life insurance in place? Who have they named as beneficiary?
  6. Who are the beneficiaries of their accounts? This supersedes the will.
  7. If remarried, it’s very easy to unintentionally disinherit biological children by leaving assets to the surviving spouse. Even with the best of intentions, if nothing is done, that spouse can easily end up remarried and assets that were meant for you end up with that spouse’s family. Do your parents have a plan for this? It’s best to discuss this type of situation with an estate planning attorney. Many offer a free consult; you can also check your Employee Assistance Program to see if there are recommended attorneys (and there is usually a discount too).
  8. Do your parents have long-term care insurance? How does the policy work? If not, what is their plan should a need arise?
  9. Do they plan to stay in their home as long as they can? Is this viable as they age in terms of the climate, upkeep, layout (i.e., stairs, handicap accessibility), and proximity of other family members to help?

Put this conversation on your short-term to-do list and start slowly. Tell your loved ones that you care — and that they are a part of your plan.

Addie McHale is a member of the DailyWorth Connect Program. Read more about the program here.