Here’s a question more and more boomers are likely to face, if they haven’t already. How do today’s adults provide financial assistance to their struggling parents without putting their own financial security – not to mention their retirement plans – at risk?
A Precarious Environment for Seniors
Just a few weeks ago here on the AgingOptions blog, we reported on the disturbing rise in the rate of bankruptcy among seniors at a time when most of the rest of the population is seeing a decline in the bankruptcy rate. (You’ll find this article by clicking here.) The rate of personal bankruptcy among those 55 and older has shot up between 66 and 100 percent since 1991, while for younger Americans the figures are trending in the opposite direction. Today’s seniors seem to be facing a more precarious fiscal environment, on average, than their own parents and grandparents did, thanks to rising medical costs, the higher cost of housing, and the disappearance of the retirement pension from the workplace.
In researching this topic of the financial plight of some of today’s seniors, we came across this article from early 2018 that appeared on the popular financial website Motley Fool. “We all like to think of retirement as a carefree, fulfilling period of life. But those expectations may not actually jibe with reality. In fact,” says the article, “28 percent of recent retirees say life is worse now that they’ve stopped working.” The chief reasons, according to the website, are financial: “inadequate income in the face of mounting bills.” The Motley Fool article says that expectations are a big part of the problem. “Workers expect their living costs to shrink in retirement, particularly those who manage to pay off their homes,” says the article. “But while certain costs, like commuting, will go down or disappear in retirement, most will likely remain stagnant, and several will in fact go up.” These include everything from food to cable service to housing – and the biggie, medical costs.
Of course, making the problem worse, a huge number of today’s retirees never set aside enough in their 401(k) plans or other long-term savings accounts. They were dangerously vulnerable at the start of retirement, so as they have aged things have only gotten more precarious.
So with that as an uneasy backdrop, what do you do if your financially-strapped parents come to you asking for help? According to USAToday, many adult children feel an obligation to come to their aid. “Out of love and concern,” one insurance official told USAToday, “we often try to step up to help our family members, but we have to understand some of the trade-offs.” By helping mom or dad too generously, a supportive son or daughter might be digging a financial hole that they’ll find impossible to climb out of. To prevent generous impulses from causing long-term financial harm, the USAToday article includes six strategies that may help concerned kids find the right balance between their own needs and those of their folks. (We’ve rearranged and re-titled these a bit for our AgingOptions blog readers.)
Consider These Six Steps
Helping your aging parents financially is the right thing to do, morally and ethically – but before you decide what to do:
- Have a Conversation: Sit down with the folks, and hopefully other involved siblings, and get all the cards out on the table. This kind of family conference is often better accomplished at a neutral site, so if we can help you plan a family meeting, please contact us. (The article doesn’t address this but there may also be problematic issues such as gambling or excessive spending that are contributing to the situation and must be addressed. An outside adviser might be better equipped to raise tough questions.)
- Determine the “Hard Cost”: “Before you commit to helping out financially, make sure you are clear about the expenses involved,” says USAToday. Studies show that one-third of caregivers currently spend more than 20 percent of their monthly budget on care for loved ones. It’s good to be generous but you must also be prudent, so “make sure you understand what you’re signing up for” by being specific concerning costs.
- Consider the “Personal Cost”: The USAToday article mentions one thing here, albeit very briefly, that we think needs more attention. If you decide to help a parent or parents financially, make sure you and your spouse are in agreement. Spending your savings, postponing retirement, or adding to your debt can be very unwise strategies, and when spouses disagree the result can be devastating to a marriage.
- Preserve Your Savings: As the USAToday piece suggests, you might not be mom and dad’s only safety net. “See if there are government benefits that could help your parents financially,” the article says. “The National Council on Aging’s website http://www.benefitscheckup.org can help you identify programs your parents may qualify for.” Depending on their health, your loved one might also be able to do part-time work. In any case, it’s important to avoid depleting your savings since you may not have time to recover.
- Don’t Sabotage Your Retirement: “If you cannot afford to save for your own retirement, you’re really limited in what you can do to help your parents,” says one financial adviser. If you deplete your retirement savings today, your kids are going to be helping you out tomorrow! Instead, if you feel compelled to help, find other ways to cut back on discretionary spending, and leave your nest egg alone.
- Prepare in Advance: It’s tough to do, especially if your folks are tight-lipped about money, but if you can be on the alert for warning signs of financial stress you might be able to take action before it becomes a full-blown crisis. This might include encouraging your folks to downsize, getting them to consider long-term care insurance, and requesting a family conference about money long before problems arise. This is an area where the advice from the professionals at AgingOptions can certainly help.
Come to a LifePlanning Seminar
One final note: we think the very best way to plan for your own retirement, and also to launch a helpful conversation with your spouse, your parents, and your adult kids, is for all of you to join Rajiv Nagaich at a free LifePlanning Seminar. We guarantee it will give you plenty to talk about and we predict lots of “lightbulb moments” concerning financial issues, housing questions, medical insurance strategies, legal matters, and family communication. Click here for a calendar of upcoming seminars, and then register online for the event of your choice. Helping your parents in their old age, after all they’ve done for you, is the best thing to do – but make sure you do it wisely. AgingOptions can help both you and your parents to “Age on!”
(originally reported at www.usatoday.com)