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How to Talk Honestly About Money With Your Family

Kimberly Palmer

Talking about the specifics of how your adult parents are going to handle aging and the related financial implications, like how to afford retirement, can be challenging, to say the least. That might be why so few parents and adult children have these kinds of frank discussions. But glossing over the details when everyone is still healthy and fiscally sound can lead to a much more difficult conversation later -- after a crisis hits.

When it comes to covering living expenses in retirement, 4 in 10 parents have not discussed their plans in detail with their children, according to the recently released 2014 Fidelity 2014 Intra-Family Generational Finance Study. About 15 percent haven't had any kind of conversation on the subject. The numbers are similar for other tough topics, including health care and elder care expenses, wills and estate planning. The study included 1,058 parents and 159 children older than age 30; to qualify, parents had to have investable assets of at least $100,000.

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Parents tend to say they want to wait longer to have these conversations, until after they are retired, while adult children are eager to address these topics before their parents' retirement. Adult children also say they think these conversations will be upsetting, and parents say they don't want their children to "count too much on their future inheritance" -- more reasons for delaying or skipping the talks altogether.

"[Adult children] have a lot of anxiety about whether their parents are going to succeed in retirement, and adult children are trying to plan for their own retirement and pay for their children's education," says John Sweeney, executive vice president of retirement and investing strategies for Fidelity. Parents and adult children also have to fight the instinct to keep financial matters private, he adds. "Most people don't talk to their children about what they make," he says, so it can feel strange to shift gears as you get older and become more open about your financial situation with your children, even when they're adults.

That doesn't mean parents need to share every detail of their bank accounts with their kids, but Sweeney recommends sharing enough about your retirement plan to give your children confidence that you'll be able to cover your expenses. "That's a great gift," he says, referring to the study findings that adult children are often unnecessarily worried about their parents' financial well-being.

[See: How to Talk to Millennials About Money.]

As a result of the lack of communication, parents and their adult children often have vastly different conceptions of how retirement will look for the parents, the study found. Adult children, for example, are more likely to think they will eventually take care of their parents than parents expect them to, and adult children also underestimate their parents' estate value by almost $300,000. Meanwhile, parents report being less worried about finances than their adult children think they are.

In fact, adult children are far more likely to think they will need to provide financial support to their parents in retirement than parents expect. About 3 in 10 adult children say they think they will provide some financial support; at the same time, almost all parents said they would not need any financial help.

Waiting to clear up these misconceptions until there is some kind of health or financial crisis can compound a family's pain. "You don't want to be having them in a moment of duress, standing at the funeral home or at the hospital," Sweeney says.

If you're ready to take the plunge and broach these topics with family members, here are some helpful strategies:

[See: 10 Money Conversations to Have With Your Family.]

1. Cover all the important topics, not just the easiest ones to talk about.

Fidelity found that parents and adult children generally report feeling comfortable starting conversations with each other about spending, budgeting and long-term saving and investing. The details, though, are the challenging part. Essential conversation topics include the specifics of parents' preparedness for handling their retirement costs. If their savings are below their target for their retirement nest egg, it's a good time to figure out a new spending plan and shore up savings now. Maybe parents can delay receiving their Social Security payments so they qualify for higher monthly payments later. End-of-life medical care, estate plans, wills and a health care proxy are also important parts of the conversation.

2. Respect parents' independence.

While adult children are often eager to offer their perspective and suggestions on parents' retirement plans, Sweeney says it's important to recognize the ultimate decision regarding financial issues rests with the parents. He calls it the "voice but not vote" rule. An adult child might want his parents to live with him, while the parent prefers to remain more independent in a nursing home, and it should be the parent who makes the final decision.

3. Plan future conversations, too.

Financial planning for aging parents isn't usually taken care of in one conversation. Situations and preferences are subject to constant change. That's why Fidelity recommends planning multiple follow-up conversations between parents and adult children to regularly check in with each other and to keep the planning momentum going.

Another reason to bring up these topics is the peace of mind they can bring, even if you have to wade through emotional subjects first. According to the study, 3 in 10 parents who had in-depth conversations with their adult children say they now feel "very prepared" for retirement compared to just 13 percent of parents who haven't yet had these kinds of discussions. And almost all parents who had the conversations say it gave them greater "peace of mind."

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