Table of Contents
As children, we see our parents as almost invincible. They have all the answers, all the resources, and are almost always healthy.
However, as our parents' age and seem to maintain their financial independence, important details can slip through the cracks and cause problems if not addressed. We can be proactive by asking the right questions and help them determine if something needs to be done.
Here are a few questions you can ask your aging parents to determine what kind of financial shape they’re in:
When was the last time you updated your estate plan?
An estate plan ensures the appropriate disbursement of assets at death through properly executed legal documents, such as wills, trusts, etc. As life changes, your estate plan can change too.
While many estate plans need updating, it is quite common that the task to do so gets put on the back burner or goes unnoticed altogether. Even if there is an estate plan in place, it may not be fully understood.
A good financial planner can interpret estate documents and provide analysis, in layman’s terms, to help one understand his or her estate plan. It is also imperative to review the beneficiary designations of retirement accounts and life insurance.
An additional question as it relates to estate planning is, who will act as a general power of attorney and health care power of attorney in the event of incapacitation?
The principal (individual designating his or her power of attorney) needs to understand who will act as the agent (person who will act on the principal’s behalf) in such an event. The agent should also know that he or she is on deck for this responsibility.
In conjunction with a health care power of attorney, a living will would help the agent understand their parents’ preferences of medical care in case something happens to them.
Finally, it is also important to understand where the original estate documents are located (safe deposit box, lawyer’s office, safe).
Do you have long-term care insurance?
The need for long-term care is going to be a reality for about 70% of people aged 65 or older, and it’s not cheap. The cost of long-term care can derail an otherwise sound retirement plan.
It’s essential for the children of aging parents to get a sense of how that situation would be handled and to be aware of any policies that exist. Understanding an LTC insurance policy that may already be in place would go a long way.
If there is not a policy in place, the next question would be, is that something the parent(s) should pursue?
The answer is maybe, depending on assets available. The premiums for an LTC policy are not inexpensive and tend to rise as the insured ages.
Do you know how much you spend each year?
In general, many people do not have a good handle on how much they spend on an annual basis. This could be especially dangerous for retirees as they may not have a good understanding of the impact their portfolio withdrawals have on its longevity.
Another way to pose this question is to ask if they deduct a specific amount of their portfolio per year. You can back into the total annual spending by adding portfolio withdrawals to fixed income (pension, social security, etc). This would also be a good time to understand their outstanding debts.
Additionally, parents who are able (and willing) to tell their children how much they spend per year will demonstrate that they are aware of their budget and their finances.
Those parents who aren’t sure how much they spend maybe in peril; it would be worthwhile to go through account statements over the past 12 months to determine what has come from the portfolio over that time period.
Fidelity suggests withdrawing no more than 5% from the portfolio; however, this figure could vary depending on the situation.
When was the last time you checked your credit report?
Seniors can be easy targets for identity thieves, so it’s important that your parents get to know their credit report and credit score. They can run their credit report for free, once per year, at Free Credit Report. If your parents find names they don’t recognize, Social Security numbers that don’t belong to them, or accounts that aren’t theirs, they might be a fraud victim. If these types of inaccuracies are found, the report will come with instructions for submitting disputes.
There are other reasons to maintain good credit. For instance, they might be downsizing to a smaller living space, or maybe your parents wish to move to a different location. If they are not able to pay cash for the new place, they will probably need to get a mortgage. And if they are going to apply for a mortgage, they will need a good credit score.
Additionally, your parents might come to a stage where they will need to move to an assisted living or skilled nursing facility. Those institutions can be quite expensive and might require their credit score to make sure they will be able to make timely payments.
Do you regularly meet with a financial planner?
I may be biased, but I believe a financial planner can and will play a key role in someone’s life as they age. For instance, a financial planner can help one answer all the questions above and help set minds at ease.
Additionally, meeting with a financial planner would help aging couples and individuals have a better understanding of their investments, types of accounts, overall allocation, risk exposure, etc.
Once all relevant data is collected, a financial planner can provide valuable guidance and illustrate what life is like now and how it might change in the future, taking into account all income sources and spending. If the parents do not work with a financial planner, it would be important to know what financial institution their investments are located in.
It may be tough for you to ask all these questions to your parents at once. If both you and your parents are comfortable having that conversation, that’s great. You can learn about all the details and could take action to start helping your parents early on.
If you don’t think it will be possible to have that conversation and ask all of those questions at once, ask one question at a time and try not to offend your parents with any of those; show that your intentions are good and that you only want to help them.
Author: Wyatt Sten, CFP®️ | Associate Financial Advisor | Allegheny Financial Group | October 2019
The information included herein was obtained from sources which we believe reliable. This report is being provided for informational purposes only. It does not represent any specific investment and is not intended to be an offer of sale of any kind. Past performance is not a guarantee of future results.
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.