Taking your Parents for a Financial Checkup

For many, speaking with their parents about financial planning can be daunting. Inevitably, subjects including death and the inevitable lifestyle changes people face as they age can be quite uncomfortable. However, it can provide all parties involved with emotional and financial reassurance in the long run. If you want to help your parents make sure their finances are in order, the Financial Planners at PSA Financial Advisors suggest that you start with these topics:

Beneficiary designations
Circumstances in your parents’ lives can change considerably through the decades. The person they designated to be the beneficiary of a retirement plan or life insurance policy 10 or 20 years ago may no longer be the person they want to inherit those assets.

Linda Tice, a Certified Financial Planner™ practitioner and a Certified Senior Advisor, says it is vital to keep beneficiary designations updated because they supersede a will. “People often think they’ve taken care of their beneficiaries because they’ve updated their will,” Tice explains. “But if you are divorced and your former spouse is still named as the beneficiary of your life insurance policy, he or she will get those assets, regardless of what your will says.”

Chartered Financial Consultant, Curtis Wilkerson advises everyone to track down policies they may have forgotten about, such as accidental death and dismemberment policies attached to credit cards, or death benefits through fraternal organizations.  “Many credit cards offer life insurance coverage, and many companies provide additional fringe benefits after retirement,” Wilkerson said. “If you don’t know about them, you won’t be able to file a claim.”

Wills and other legal documents
Julie Finney, a Certified Financial Planner™ practitioner with expertise in senior issues, says, “A lot of people have wills, advance directives and durable powers of attorney, but they haven’t looked at them in a while.” As with the beneficiary designations, encourage your parents to check their legal documents periodically and make sure they still reflect their wishes.

If one parent passes away, these legal documents should be updated immediately to designate someone else, most likely a child, to make important legal and medical decisions for the surviving parent. Keeping these documents accessible is as important as keeping them current, Wilkerson says. For example, even if your mother has a “do not resuscitate” order in her health care declaration, medical personnel would be obligated to resuscitate her if they didn’t have the document in hand. “Also, parents need to tell their children in advance that they are designating them to handle their affairs so they aren’t surprised and overwhelmed.”

Asset allocation
As your parents grow older and especially once they reach retirement age, their investment focus will switch from an aggressive “growth” mentality to an “income” mindset. Remind them to consult their personal financial planner about adjusting their investment portfolio accordingly. “Their portfolio must carry them through retirement, and that could last 30 years,” Finney says. “Your parents will be looking for safety, income, and some growth in retirement because they can’t afford to lose their assets.”

Likewise, in retirement your parents must have a larger cash reserve – preferably one or two years of income – so they don’t have to rely on their nest egg in an emergency. “If the market slumps, the worst thing they can do is tap into a depreciating asset,” Finney explains. “Having a cash cushion can protect their investments and make sure their nest egg is safe and secure.”

Long-term care
If a parent becomes incapacitated and incapable of performing basic activities of daily living like bathing, eating and dressing his or her long-term care needs can stifle your family financially. According to a February 2006 Wall Street Journal Online/Harris Interactive Personal Finance Poll, only 26 percent of respondents think they will have enough money to finance their own potential long-term care needs as they age. More than 40 percent of respondents say they expect to either fully foot the bill or share long-term care costs associated with their parents’ potential long-term care needs.

Where to start
Not sure how to approach your parents about a financial checkup? Try these conversation starters:

 Long Term Care
One of the best ways to budget for long-term care needs is to purchase long-term care insurance. New federal laws are giving people incentives to purchase such policies rather than rely on a strained Medicaid program. Four states are already participating in “partnership” programs in which individuals who purchase long-term care insurance can qualify for Medicaid after they have exhausted their policy benefits without spending all of their assets, as normally required by Medicaid rules.

The new federal law paves the way for other states to follow suit. “The government is saying that if you take care of yourself with insurance, we will allow you to keep that money in your estate,” Wilkerson says.

Funeral Planning
Picking out caskets and burial sites can certainly be an uncomfortable experience, but making these arrangements in advance can prevent excess spending, emotional stress and disagreements after a loved one’s death. “Pre-planning is a way to make decisions so your family doesn’t have to,” Tice says. “Funerals can be terribly expensive, and sometimes children feel compelled to buy a big, beautiful casket, when it may not even be what their parent would have wanted.” By preparing their funeral arrangements in advance, your parents can also guarantee that their wishes – such as being cremated or asking for charitable donations instead of flowers – are carried out.

Medicare prescription drug plan
Beginning this year, anyone who uses Medicare is eligible to enroll in a supplemental prescription drug plan or a health plan that includes drug coverage. While these plans can help your parents offset the often sky-high cost of prescription drugs, they must dig through a maze of information to find the best plan for their individual situation. Medicare prescription drug plans are administered locally; in Baltimore County alone, residents can choose from 47 different prescription drug plans and 19 different health plans with prescription drug coverage. All of these plans have varying premiums, deductibles and formularies. Tice encourages seniors, and their children, to seek professional assistance when researching these supplemental policies. “This is a very complicated issue and individuals need to find some kind of resource to navigate the available plans,” she says. “Many pharmacies are offering consultations and that is a good place for people to start.”

Living Situations
If your parents are still independent, healthy and active, it might be the right time to consider moving to a retirement community or an independent living facility with an assisted living option. If it sounds premature, consider the case of Tice’s independent, active, 86-year-old mother, who lives in such a facility and couldn’t be happier. “You want to make decisions like that early and not wait until you can no longer live on your own,” Tice says. “One of the benefits of a senior living facility is the social atmosphere, and if you move in at a time when you can’t get out and make friends, then you are losing a major benefit.”

Finney advises seniors and their children to also consider what the future will bring when deciding whether to relocate or sell a home. “People will often move to a vacation home, then have health issues and move back to where the children are,” Finney says. Starting a dialogue with your parents about financial and estate planning may be difficult, but it can benefit both parent and child. “Children often have to step in and make decisions after a parent dies or becomes ill,” Finney says. “Having an open dialogue about these matters ahead of time can give every member of the family peace of mind, and also help your parents enjoy their golden years.”

                
Linda J. Tice, CFP

T: 443-798-7419
Em: linda@psafinancial.com
 
Area of Specialty: 
Investments, retirement and financial planning, long term care insurance, and health savings accounts.  (More) 

Julie Finney, CFP

T: 443-798-7421
Em: julief@psafinancial.com

Area of Specialty:
Comprehensive financial planning, retirement planning, education planning, investments, insurance and estate planning.  (More)

T: 443-798-7318
Em: curtis@psafinancial.com

Area of Specialty: 
Business insurance & planning, estate planning and family wealth preservation. (More)