Your parents—they raised you, loved you, gave sound advice, and above all else, provided financial security. But now, as your parents get older, it may be time for you to return the favor—especially when it comes to managing finances.
As your parents advance in age, it’s likely they’ll need some help with managing their finances. Research shows that financial decision making peaks in our early 50s; by the time we reach age 60, the brain’s ability to process new information begins to diminish1. This natural side effect of aging becomes even more apparent as we venture further into our 60s and 70s.
Whether it’s helping out with expenses, educating them on how to avoid online scams, or just stepping in to assist in financial decision making, there are plenty of steps you can take to help ensure your parents’ financial security well into retirement years. If you’re noticing your parents are slowing down due to age or illness or may not be as sharp as they once were, it may be time to reach out and offer support.
With approximately 10,000 Americans turning 65 every day2, the population is aging. Despite this shift, 73% of Americans have not talked to their parents about finances3. While many families find it difficult to broach the subject of finances with their aging parents, failure to do so could result in financial difficulties down the road. What’s more, when your parents find themselves struggling to handle their financial responsibilities, it might be hard for them to ask for help—even if they need it.
Knowing the Warning Signs
While worries in the back of your mind may nag at you, finding the time to talk about your parents’ finances may never seem right. With money being a tough subject to broach, it can be easy to feel like you’re invading their privacy or independence. However, having a conversation with your parents about finances is necessary in the event you need to step in. Asking them just a few key questions ahead of time – even years before they need the help—can make the conversation less intimidating. Think of it simply as honoring their wishes and intervening to help them avoid financial issues down the road.
So how do you know if, and when, you need to step in?
Start by looking for signs such as unopened mail starting to pile up, frequent calls from creditors, and even expensive new purchases around your parents’ house. You’ll also want to take note of any behavioral cues. Are they having difficulty with day-to-day tasks like paying bills or balancing their checkbook? Are they struggling to count change? Are they complaining often about not having enough money? These are all telltale signs that it may be time to lend a helping hand. Consider the following steps to effectively help your parents manage their finances.
1. Get Financial Power of Attorney
In order to step in and assist your parents with their finances, you’ll first need to get legal permission to do so. To make things official, you’ll want to secure a financial Power of Attorney (POA), a written document authorizing a “primary agent” to act on your parents’ behalf, which gives you the legal right to make financial decisions for them. There are different types of POAs available, largely dependent on how much control may be needed in the future. If you plan to take complete control of your parents’ finances for an indefinite period, a general POA may be most suitable, but you’ll first want to have the discussion with your loved ones and a legal advisor attorney to plan the best course of action.
Once you’re deemed your parents’ “primary agent,” you’ll have the power to write and deposit checks, pay bills, and mange property and investments on their behalf. By having a POA, you’ll avoid the need to later be appointed your parents’ guardian—which is typically an arduous and expensive court process. What’s more, as the appointed decision maker, you’ll be able to avoid prolonged disagreement between family members.
2. Account for Any Wills and Trusts
On the topic of important documents, you’ll want to make sure that your parents not only have a will, trust, and living will, but also that they’ve been updated and are easy to locate. A will outlines who your parents have designated to administer their estate and inherit certain assets, whereas a living will provides a statement of their wishes related to their health in the event they become unable to make these decisions on their own. A trust details how your parents would like other funds, such as 401(k)s and IRAs, to be distributed.
3. Organize Important Financial Documents and Account Information
Once you’ve gained legal access to everything, you’ll want to take inventory of your parents’ important financial documents and accounts. If your parents already keep their bank and investment files in a safe, easy-to-locate place, you’re one step ahead of the curve. If not, encourage them to provide you with a list of their accounts, account numbers, usernames, and passwords, with details and locations of their files. Important documents to include here are bank and brokerage statements, insurance policies, pension records, Social Security payments, and any safe deposit boxes.
Also note that banks and financial institutions have strict measures in place to control who can access accounts. In some cases, you may be required to complete their own forms, even if you already have Power of Attorney.
4. Identify Sources of Income
Depending on your parents’ age, they likely have multiple streams of income or receive some type of government benefits. Whether it be pension checks, dividends from investment activity, disability money, or Medicare, Medicaid, or Social Security benefits, taking note of your parents’ cash flow allows you to determine their net monthly income. Once you’ve familiarized yourself with all of your parents’ avenues of income, shift your focus to their recurring monthly expenses—utilities, mortgage and car payments, credit card payments, etc. This will allow you to step in and help them from overspending or underbudgeting. You can also seek advice from a financial planner or retirement income specialist at this point to develop a plan best suited to pay monthly expenses and maximize remaining income.
5. Evaluate and Manage Bills
Now, let’s talk about bills—we all have them, even your parents. But don’t be surprised if some of them are behind. Your parents may have forgotten to make a payment, or perhaps they overextended and don’t have the means to pay all their bills one month. If you suspect your parents are struggling to keep up with their bills, it’s smart to start tracking them. Ask your parents to have their financial institutions, mortgage companies, and others automatically send you copies of their monthly statements, so you can readily follow up and step in when needed. In helping your parents better manage their bills, you’ll want to ask yourself the following questions. In an average month, what are their expenses? Is there a budget in place to prevent overspending? How do they currently pay their bills (checks, online banking accounts, etc.)?
When you find it’s time to step in, consider automating their finances by turning on automatic recurring expenses. You can have each company send you reminders and notifications via email when bills are due or coming up. This not only simplifies the process of paying bills, but also ensures that they never miss a payment again.
6. Help Them Plan for the Future
Once you’ve helped your parents get their current financial situation sorted, it’s time to start planning ahead. Ask them how they envision their future and the plans they may have for managing everything as they age. This also accounts for their ideal living situation going forward. Would they like to stay in their current home to “age in place,” move closer to relatives or loved ones, or relocate to a retirement community? If they’re planning to age in place, what upgrades or modifications will proactively need to be made around the home to live more comfortably? Budgeting for these well in advance will allow them to make these plans a reality. Alternatively, if your parents are wishing to age in place, but could use some extra funds to make these modifications, tapping into their home equity with a reverse mortgage could be just the solution.
With nearly half of all lifetime healthcare spending occurring in retirement4, you’ll also want to help your parents budget for future healthcare expenses. Have they thought about how they’d like to receive long-term care, if required? Do they have long-term care insurance or other plans in place to help pay for this care? Knowing their wishes ahead of time not only relieves some of the stress related to an emergency long-term care situation, but also allows you to better prepare financially.
7. Document Everything You Do
It’s no secret that managing someone else’s money can be a bit of a minefield. Regardless of how strong your family is, money, unfortunately, has a knack for driving a wedge. To keep the peace and avoid any negative feelings or hostility, be extremely thorough in documenting everything you do related to your parents’ finances. If you pay Dad’s bills, keep copies of every check written or payment submitted. If you pay for anything with Mom’s cash, hang on to the receipt. If you meet with a financial planner, take detailed notes of any advice or action steps they provide. By keeping these detailed records, you’ll show family members that you’re handling your parents’ finances as responsibly as possible.
While there is no perfect way to take control of your parents’ finances, waiting too long and doing nothing simply increases the chances of unrecoverable financial loss—not to mention the stress that comes with it. The best time to talk to your parents about their finances is while they’re still mentally sharp and self-sufficient. Even the simplest measures of proactive planning can help you ensure your parents can enjoy their golden years in a financially secure, responsible way. With some planning and upfront work, your parents’ financial situation can be smooth sailing for years to come.
However, if your parents could use an additional source of cash flow, a Home Equity Conversion Mortgage—also known as a reverse mortgage – could be the solution. If your parents are 62 or older and own their home, they can use a reverse mortgage to access their home equity and get needed cash—with no monthly mortgage payments required*. If they have an existing mortgage, the reverse mortgage will first be used to pay that off. And without that recurring monthly payment, they’ll free up more cash each month to spend as they wish.
* Real estate taxes, homeowners insurance, and property maintenance required.