As today’s older generations outlive their predecessors, their children and grandchildren are called upon to care for their needs for a longer period of time.
People caring for aging parents are concerned about more than just their physical health. In many cases, they must manage their parents' financial health.
In fact, in a 2018 MassMutual study, 49 percent of respondents said they manage parents’ and/or in-laws’ finances, while 31 percent are financially responsible for parents and/or in-laws.
If you’re not already a member of the sandwich generation, you may be in the future. Preparing for that responsibility now can make it an easier transition for both you and your parents.
Here are three financial areas you can focus on if you are or will be caring for aging parents.
As you begin caring for aging parents, you should assess their overall fiscal health. This includes:
- Their assets. This includes property, cash, retirement accounts, insurance policies, and anything else that has value.
- Their liabilities. What, if anything, do they still owe on their mortgage? What other debts do they owe? How much longer will they have to pay on these obligations?
- Their income. Determine what your parents currently earn and what their future earning capacity is? If they still work, how much does it pay and what happens if they can no longer work? Do they have annuities or a pension that provides or will provide income? What do they or will they collect from Social Security? How much can their retirement accounts realistically pay and for how long? You should know where to find at least the last five years or so of tax filings.
- Their expenses. Get a handle on what they spend on basic necessities, housing, insurance premiums, medical care, and any discretionary spending.
One type of asset and source of income your parents may want to consider is a longevity annuity.
Also known as a deferred income annuity, this financial product enables retirees to wait longer before taking money out of a qualified retirement account.
Under normal IRS rules, people must begin taking a Required Minimum Distribution from a qualified retirement account, such as a 401(k) or IRA, starting at age 70 1/2.
A longevity annuity, however, enables people to wait up to age 85 before having to withdraw funds.
One of the hardest parts of caring for aging parents is tracking down where their money is and who is in charge of managing it. Before you get to a point where your parents can’t help you with this task, get a list of:
- Banks and financial institutions where they have accounts and the account numbers, plus any safe deposit boxes.
- Insurance policies and policy numbers, including life insurance, disability insurance, and long-term care insurance.
- Retirement accounts and the companies that handle those accounts.
- All financial advisors that help your parents, including retirement planners, financial advisors, tax preparers, insurance agents, and investment advisors.
If your parents do not have professional advisors, you should help them find one to help them maximize their income, investments, and assets. A professional can also work with you and your parents to make critical financial decisions. If your parents lack insurance, a licensed insurance agent may be able to find them adequate coverage, especially for potential long-term care needs later.
It’s also important to review existing insurance policies and financial documents with your parents to ensure that the proper beneficiaries are identified based on their current wishes. Many policies and accounts were issued years ago and may not include family changes that have occurred.
There are a number of legal and financial decisions you may need to make when caring for aging parents. The goal should be to carry out their wishes as best as possible.
This starts by knowing your parents’ attorney if they have one. From there, some of the information you should seek includes:
- Do your parents have a will? If not, one should be drawn up immediately. If so, does it reflect your parents’ current wishes in terms of its beneficiaries?
- Do your parents have an estate plan? Same thing as the will.
- Who has been designated as their power of attorney? This is an important designation, as it’s the person who is legally empowered to make financial and legal decisions on their behalf if they are unable to do so.
- Have your parents made end-of-life plans? Have they communicated their wishes in the event they become incapacitated? Do they have advanced health care directives that designate somebody to make health care decisions? Do they have or need a do-not-resuscitate (DNR) order? Have they communicated their wishes for their remains and made the necessary plans with a local funeral home, church, or other entity?
Have these discussions with your parents while they’re healthy enough to assist you. One of the worst things that can happen when caring for aging parents is having to guess how they wanted to be cared for.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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