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Ensuring Your Parents' Financial Independence
By Michelle Andrews
Here's how to work with your parents so that they can make the most of their money.
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For our parents, with rare exceptions, the peak-earning years are long gone. There's much more money going out these days than there is coming in. Under these circumstances, properly managing what money they do have is tricky, especially because failing to do so can be devastating—for them and for us. After all, the opportunities to recover from mistakes at this point are limited.
But many of us know little, if anything, about our parents' finances. Do you have any idea how much money your parents have? Is it enough to meet their needs?
Make no mistake: You need to know the answers to these questions—and a host of others—right now, so that you're able to arm yourself with all the information you need before a crisis strikes. If it already has, there are still steps you can take to make the best of the situation (see Caregiving Resource Guide). Something else you must do as you begin this process: Keep a close eye on health conditions such as dementia, depression and substance abuse that can cloud your parents' judgment where matters of finance are involved.
CONVERSATION IS KEY
The first step is to engage your parents in a conversation about their money. And don't wait for an invitation, because it's unlikely to come. There are a couple of ways you can ease into the subject. One is to use your own financial situation as an icebreaker. Try something like, "Dad, I've started putting money into my 401(k) because I'm a little worried that I might not have enough coming in when I retire. Do your pension and Social Security checks cover your expenses?"
Another simple strategy: Remind your parents of a relative or friend—most people know somebody who fits the bill—whose family was left scrambling when he got sick. Or use a story in the news to open the conversation.
Don't be surprised if you feel uncomfortable the first time you try talking about these issues. Most families aren't very good at discussing them. Just remember, this is the start of an ongoing dialogue. Once you determine which conversation-starting technique is most effective, return to it when you need to. Your parents may resist your efforts at first, but chances are, in the end, they'll be relieved that you took the initiative.
"What motivates Mom and Dad is that they don't want to run out of income and they don't want to become dependent on you," says Patti Houlihan, president of Houlihan Financial Resource Group in Fairfax, Virginia. "They don't want to move in with you any more than you want them to. Everybody wants the same result: independence for all and quality of life."
ADD IT UP
You're not going to be much help to your parents if you don't know what you're working with—and against. Once you've got the ball rolling, move immediately into nailing down the specifics about savings, income and expenses:
- Tally up figures by month and by year (see Financial Work Sheet).
- When doing this, make sure everything is accounted for, no matter how small the figure.
- Also, calculate your parents' net worth—the difference between their assets (income and property, including investments) and liabilities (expenses and debts). This is critical for long-range planning (see Calculating Net Worth).
On the plus side of the ledger:
(+) Don't forget to include all pension benefits, even small sums from past employers (make sure you're familiar with their entire work history). And, for those who have served in the military (and their spouses), veterans' benefits are key.
(+) List all bank accounts.
(+) If there's a safe-deposit box, know the location of the key. Sometimes that won't be enough: Banks may stipulate that only those whose names are on a signature card can have access to safe-deposit boxes.
(+) While you're at it, make sure that anything requiring the designation of a beneficiary is updated to reflect your parents' present wishes.
On the debit side:
(-) Scrutinize expenses and try to trim what's unnecessary. For example, do your parents have life-insurance policies that they no longer need?
(-) Keep a close eye on credit-card debt, an increasingly common problem among our parents' generation.
(-) Other red flags: frequent transfers from savings to checking accounts, disconnect notices from utility companies and threatening letters from banks, insurers or collection agents.
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