Facing Financial Reality

Transcription

1 Talking with Family Members About Their Retirement Finances and Health Care Wishes WINTER 2015, Part 3 of the Financial Gerontology Series BY CYNTHIA L. HUTCHINS, CRPC, CIMA, Director of Financial Gerontology Too few families speak about critical financial topics and health care concerns associated with aging. Adult children usually don t address these topics with their aging parents, and many aging parents aren t broaching these subjects with their adult children. This article explores key topics that families should address so that, when the need arises, everyone can be confident that family members wishes will be understood and carried out. Merrill Lynch s extensive research has revealed that family represents one of seven life priorities for many people, and that includes helping loved ones preserve their financial security as they age. The conversation needs to happen A 2013 Merrill Lynch retirement study found that up to 70% of people over age 25 have not talked with their parents in depth about the parents fi nancial status, where they wish to live in retirement, their plans for long-term or end-of-life care, or wills and inheritances. 1 Similarly, more than half (56%) of parents over age 50 report that they haven t yet discussed these topics with their adult children and 28% haven t even tackled one or more of these topics with their own spouses. 1 It is essential to address these subjects early and continuously for two important reasons: so decisions can be made carefully and deliberately, before there is a crisis; and to ensure that key family members are involved and informed about these topics, which can prevent disagreements and discord down the road. 70% of adults haven t discussed long-term financial and health care plans in depth with their parents. 1 Merrill Lynch makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value 2015 Bank of America Corporation. All rights reserved.

2 We ve found that parents often want to avoid discussing their fi nances and health care with their children. What makes them hesitate? There are a few common reasons: Loss of control Parents may worry that they will lose control over their own resources. They may also fear that they ll lose their independence if they admit having difficulty handling their own fi nances. No parent wants to be parented by his or her own children. Facing the inevitable Discussing wills, estate plans and wishes for long-term and end-of-life care can be very uncomfortable because these topics force parents to confront their mortality. Privacy and fear Parents may feel that personal fi nances should always be kept private. In rare cases they may even worry that sharing fi nancial details could put them at risk of being fi nancially exploited. Discord and dependency Parents may be loath to trigger potential family conflicts over fi nancial and health care issues. They may be concerned that their children won t maintain self-reliance if they learn how much money they stand to inherit. Discussing these worries and concerns is a critical fi rst step as fi nancial topics take center stage. Parents and children alike need to feel confi dent that they can be partners in fi nding the best path forward and that parents will remain in control of decisions that affect their lives and futures. Starting point: current financial status The fi rst topic that families should discuss is their loved ones current fi nancial status monthly income and expenses. This begins with listing all sources of income including Social Security, pensions, retirement savings account distributions (e.g., IRA, 401k), dividends and interest, rent, and so on. If there is a traditional pension involved, does it have a benefi t for the surviving spouse? After determining these income sources, the next list to tackle is regular expenses. By compiling thisn information, you will be able to determine the current cash flow needs of family members as well as the income sources available to meet those needs. Next, it s critical to talk about the environment in which these family members handle their fi nances. As a parent, it s important to share this information with your children. And as an adult child, it s important to ask the right questions to learn about your parents fi nancial habits where they do their banking and who advises them fi nancially. Do they have a mortgage and, if so, who is the mortgage company? Where do they store fi nancial records, account details, computer usernames and passwords? Similarly, family members should know where to locate parents other important documents such as real estate deeds, real estate insurance documents, Social Security and Military Service records, life insurance documents, and health insurance papers. Work with your family to assess loved ones financial situations, and share with them key information about your own finances: List sources of income Identify regular expenses Learn about their banking habits Locate important legal documents If these important documents are not easily accessible, work with family members to gather and organize them. Merrill Lynch s My Document Vault can help with consolidation of these documents. In the event of death, knowing about and easily locating these critical documents will ease the burden of estate settlement. While taking these steps with aging parents, children and other family members should start organizing their own information in a way that will make it easier for others to understand and access it. 2

3 Crossing the Ts As people move into and through retirement, it is important that they take full advantage of legal instruments to ensure that their financial wishes are respected. Family members should partner with each other to develop legal strategies for their financial futures as an adult child, initiate these conversations with your parents, and as a parent, involve your children in important conversations you have with your professional advisors. Find out whether your family members have an existing relationship with attorneys, accountants and financial advisors. If so, ask their permission to develop relationships with these individuals. If you or your aging parents have not yet granted someone a durable power of attorney for finances, it may be wise to do so. This legal document names a person who can make financial decisions for the grantor in the event he or she is incapacitated and cannot make financial decisions on his or her own. Durable power of attorney lasts until the grantor s death but can be amended by the grantor at any time. It s also important to discuss inheritances and wills so that family members wishes and expectations are clear. Families should discern whether parents already have an estate plan or trusts, or whether they intend to establish such plans in the future. Will any retirement accounts (e.g., IRA, 401k) pass to a beneficiary? Take the time to identify all accounts related to inheritances, and centralize this information via My Document Vault, with a lawyer, in a safe deposit box or in another secure location so that relevant family members may access it when the need arises. Get clear on health care costs As people progress through retirement they may incur significant health care costs, even in their active and independent years. The average American s lifespan continues to increase, so retirement is lasting longer, and with this comes the potential for greater out-of-pocket health care costs. In fact, it has been estimated that these costs may range from $50,000 for 10 years of retirement to up to $300,000 for a 30-year retirement per person. In the case of a couple, that amount can add up to $600, To plan effectively for these costs, it s smart to learn about family members ongoing health care needs and expenses and determine the resources available to cover them. They may have coverage that includes Medicare, an employer plan, employer retirement health coverage, or other types of supplemental insurance coverage. Health care costs increase exponentially with age With longer life comes more time spent in retirement, and more health related concerns. As we age, we ll incur exponentially increasing health care costs. Long-term care a big unknown Longer lifespans have also increased the likelihood that you or an elderly family member will develop a disease that requires long-term care. For example, the incidence of cognitive impairments such Alzheimer s disease or other forms of dementia is predicted to rise as baby boomers live longer than did previous generations. Alzheimer s is the disease people over the age of 50 cite as the most worrisome disease associated with living a longer life. 3 This is because Alzheimer s is progressive, gradually destroying the individual s thinking processes and ability to carry out even the most basic life tasks. It is also a disease that can progress over several years and we don t yet know the cause or have a cure. Developing any illness that demands long-term care is a possibility too important to ignore, so families should work together to plan for long-term care scenarios. This way loved ones can get the right assistance with their daily activities if they ultimately need it. $ Years in retirement Unless a family plans to provide full-time care for these loved ones personally, the costs of caregiving will need to be covered. Long-term care insurance can protect family assets if someone develops conditions requiring daily assistance, especially if a condition lasts many years. 3

4 As a first step, families should find out who already has long-term care insurance. It s important to discuss what type of long-term care you and your family members envision home care, assisted living, a nursing home? Different types of long-term care may be appropriate for different forms of disability (e.g., cognitive vs. physical). Pay close attention to what long-term care insurance covers. For what s not covered, it s critical to have a plan for paying whether that means factoring potential health care costs into your own financial strategy, or helping aging loved ones prepare their own strategy. Tough questions about end-of-life It is essential for families to understand each other s wishes for end-of-life care. Formalizing these wishes legally and sharing them with close family members will help to prevent confusion and disagreement. Partnering with aging loved ones now to explore this topic also avoids scenarios in which close family members must make difficult decisions during a period of crisis or grieving. Talk to your parents, children and other close relatives about these sensitive issues and formalize them. To legally ensure that these wishes will be respected, they must be established in writing as a type of advance directive. Two important advance directives are the living will and durable power of attorney for health care. The living will records end-of-life care wishes that will be carried out if individuals cannot make decisions for themselves. These preferences can relate to things such as pain management, use of life support, and organ donation. A durable power of attorney for health care entails naming a health care proxy who will make health care decisions for individuals when they cannot make these decisions for themselves. Like a durable power of attorney for finances, this power lasts until the grantor dies. Family members situations can affect your finances Recently, Merrill Lynch assessed the retirement landscape and learned that people tended to cluster their ideas for retirement around certain life priorities health, home, finance, giving, work, leisure and family including the financial needs of parents and children. As family members age, we want to help them if we can. But doing so often requires significant time and money, which can put the adult child s own career progress and retirement savings at risk. Close family members should consider asking each other if they might establish relationships with each others financial advisor(s). This could facilitate a discussion of how much parents expect to rely on their children for future care and financial assistance. Similarly, adult children should speak with their own advisor(s) about how such an obligation may affect their own financial goals and retirement plans. In both scenarios, the advisor(s) should stay attuned to family financial decisions that could impact financial goals both those of clients and their families. Family members may also need to support loved ones by providing another resource time. For example, elderly loved ones might rely on family to drive them to errands, social gatherings, or appointments when their driving abilities decline. Regardless of expectations, family members should establish roles that they are willing and able to play. Equitable and clear expectations who will do what, and when can help to prevent future disagreements when someone is most in need of assistance. Seven life priorities As you envision your future, it s important to consider the many priorities that influence your financial decisions. Family, community involvement, health concerns and the need to balance work and home life with leisure time may drive your goals. However your family members fit into your life, it s important to think about how you want to support them, and factor that support into your financial strategy. As families are taking these steps with aging parents, it s wise to begin laying the groundwork with the younger generation. They, too, might be wondering how sound their parents plans are for the future. Some initial conversations will help to reassure them and set the foundation for more in-depth conversations later. 4

5 Have the talk Talking with family about fi nancial matters is not a one-time event: it has to be an ongoing dialogue. Families should start exploring the topic as early as possible, to create a fi rm foundation before some unforeseen situation forces everyone to make decisions in crisis mode. As you and your family members get older, the conversation may change as priorities shift, or fi nancial options might become broader or narrower. Frequently take up this subject to help loved ones maximize quality of life at every stage. Approach conversations about fi nances and health care with sensitivity. As you broach these topics with family members, like your parents, emphasize that you want to be a partner, and that you don t intend to parent them. 4 Communicate that you want them to remain independent for as long as possible and that you are not trying to make decisions for them you are seeking an education around their goals and how you can help them achieve these goals, especially if they can no longer do so themselves. Show respect for their desire to remain independent and share all of your concerns, but do not force opinions on them. Respect their need for privacy, too, and let them determine what levels of information they are willing to reveal about their fi nancial and health care worlds. They may choose to include only a limited number of family members in the conversation. If you are broaching these topics with your adult children, share any concerns you might have around maintaining independence and remaining in control of your decisions. Let s be honest: these discussions can be difficult. Emotions may range from grief, fear, and uncertainty to frustration and anger. 5 As such, approach these conversations with empathy, patience and compassion. Both parents and adult children alike can learn how to maximize quality of life by partnering and exploring these topics together. With these discussions fully carried out, family members will know that their wishes will be respected and executed, and that loved ones are working together to achieve the best possible future for them. Remember: if you find it hard to start these conversations with your aging relatives, you can imagine how your own children might have misgivings about exploring financial topics with you. By taking the first step, you can begin a productive dialogue with your children that can align expectations and clarify details that can make your relationship deeper and stronger. Endnotes 1. Merrill Lynch & Age Wave. Family & Retirement: The Elephant in the Room Yamamoto, Dale H. Health Care Costs From Birth to Death. Health Care Cost Institute; Society of Actuaries Merrill Lynch research study, Health and Retirement, Planning for the Great Unknown. September Dale Susan Edmonds. Children of Aging Parents: Become a Partner NOT their Parent. ( Accessed Goetting, Marsha A. and Schmall, Vicki L. Talking with Aging Parents about Finances. MontGuide MT199324HR. Montana State University Merrill Lynch makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value 2015 Bank of America Corporation. All rights reserved. ARYWL