There are few more unpleasant topics for adult children and their aging parents than talking about money. But after the financial devastation of the past year, you have more reasons than ever to have that conversation.
After all, the same forces that have walloped your 401(k) may also have wreaked havoc on your parents' retirement savings -- and they probably don't have years to sit tight and hope for a recovery. While you're trying to figure out how much longer you may have to work, they may need to rethink everything from their daily budget to their estate planning, and they may need your help to do so.
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"We've all planned for greater money in the future. No one has planned for less money," says Gary Altman, a Rockville, Md., lawyer who specializes in estates.
Starting the conversation may be the hardest part, especially if your parents are extremely private about their financial affairs, embarrassed about their losses or simply suspicious of your motives. Sharing your own experience may give you an opening line, financial planners and lawyers suggest. "My 401(k) is half of what it was," you might say. "Have your savings been affected as well?"
Once the door is open, here are some questions to ask:
"How are you doing financially?" Falling stock prices, lower interest rates and reduced dividends at many stalwart companies may also have sliced retirees' monthly income, requiring them to sharply cut spending or consider new ways to get income out of their assets.
Elderly parents may need your help revising their budgets, or they may need to rework their investment mix. Others may need to explore ways to tap their home equity. If that isn't your strong suit, you may want to help them find a financial adviser.
Craig C. Reaves, a Kansas City, Mo., lawyer and president of the National Academy of Elder Law Attorneys, says his clients, who generally have total assets of $1 million to $2 million, are worrying about outliving their money and are cutting back on gifts to their children and grandchildren -- another topic worthy of discussion.
If your parents are 70½ and older, however, there is a bright spot: They don't have to take their required minimum distribution from their individual retirement accounts this year unless they need it. That means their funds have some time to recover and they can avoid paying income tax on a required distribution.
"Will you be able to afford a nursing home?" Those in their 50s, 60s and even 70s who have seen their total net worth decline should revisit whether they want to buy long-term-care insurance to cover the possibility of nursing-home care, which now averages more than $75,000 a year.
W. Thomas Curtis of financial-planning firm FSP & Associates in Gaithersburg, Md., says many of his clients expect to pay nursing-home costs out of their savings. But one of them has seen his investments fall by 40%. Now in his 70s, he also has a heart murmur that would disqualify him for most insurance. Luckily, as a federal government retiree, he can sign up for the insurance during open-enrollment season without a medical exam.
Long-term-care policies are expensive, and they don't make sense for everyone. If your parent feels like it's a good idea, advisers recommend lining it up in your later 50s or in your 60s, before any serious medical problems develop. They suggest looking for a policy with a highly rated insurer that adjusts for inflation and covers in-home and assisted living as well as nursing homes.
"Is there a salesperson trying to sell you something?" Adult children should ask their parents that question. If the answer is yes, encourage them to talk with you or an adviser before they buy anything.
Among the possibilities: telemarketing scammers promising sweepstakes and lottery winnings in return for initial payments, and slick salesmen selling seniors products or services they don't need. Senior citizens particularly need to beware of investments that may sound good -- offering regular income or guaranteed returns -- but that may be inappropriate for retirees.
Many annuities, for instance, come with steep expenses and "surrender" fees, which prevent the holder from withdrawing their money for several years without a huge penalty, making the funds inaccessible in an emergency.
"Should you update your will?" Talking about an estate can be particularly touchy -- especially if a parent thinks you're trying to get your hands on it. But it's worth asking if financial losses change the way a parent wants the estate handled. A commitment in a will to donate, say, $100,000 to a charity may leave less than intended for others because the estate's value has fallen so much.
When reviewing a will, make sure that documents spelling out who can make financial and medical decisions are up-to-date.