Discussing money, health, and mortality with loved ones can be incredibly difficult. Despite the discomfort you may feel, these discussions are critical to build trust and ensure the wellbeing of all the generations in your family. These are the six financial matters you should be discussing with your older family members.
Income and Expenses
Nobody wants to admit that they didn’t plan well, but many Americans are ultimately unprepared for retirement. When I speak with young professionals, many express concerns about their aging parents and whether they may need to support them financially, but few understand what that need looks like because they haven’t discussed it.
For older family members, particularly ones who may be dependent on you for support if their funds ran out, it’s critical to understand their:
- Basic monthly living expenses
- Less frequent expenses like taxes
- Liquid emergency reserves
- Income they receive (or will receive) from pensions, Social Security, or other sources
- Amount of money they have in their retirement plans, along with their investment allocation and distribution plan
Let’s say you’re looking at an older family member who has $5,000 in monthly expenses, receives a net income of $3,500 from Social Security, and can sustainably take a net income of $1,000 per month from a $300,000 retirement account.
In this case, we’re looking at a $500 shortfall every month, which would likely mean they’re depleting their retirement account at an unsustainable rate and risking running out of retirement assets altogether. Since it’s a smaller issue today, the remaining family may be able to provide that additional $500 per month to extend the life of the retirement assets or work with the older family member to make some budgeting or investment changes today.
Down the road, $1,500 per month in today’s dollars might be a much more substantial burden for the family to try to shoulder.
Debt Management
You’ll also want to understand if your older family member has any debts, including mortgages, credit card debts, business loans, personal loans, auto loans and student loans. If they do have debts, you’ll want to understand their plans for repayment. If the debts are substantial and have high interest rates, they may want to consider debt consolidation or working with a debt specialist.
Investments
One of the biggest mistakes I see among the older generations is a failure to invest according to risk tolerance and financial goals. Either investors will hold onto mostly cash and lose substantial purchasing power to inflation, or they will take on way too much risk for someone who needs their assets for income. Inquire about your family member’s asset allocation, income goals, and tolerance for risk to determine if their investment portfolios are acting as intended. If there is no coherent plan or things look off, encourage them to speak with a qualified financial professional.
Charitable Giving
If your loved one is charitably inclined and can easily pay for their own expenses, implementing charitable giving in their plan can create both tax and estate planning efficiencies. Discussing their favorite charities and causes they are passionate about can also lighten the mood and bring you closer during an otherwise heavy conversation.
Insurance
As we age, our health can often decline, which drives up healthcare expenses. In the United States, individuals become eligible for Medicare when they turn 65 years old. They also have the option to add additional plans beyond the basic coverage to decrease their financial risk if they do become very sick. Inquire about what your family member has in place to be able to plan for potential costs.
Many people over the age of 65 will also have a need for long-term care coverage, which traditional Medicare does not cover. If a person can’t do some basic activities of daily living and they need support every day, that care is called long-term care. It can be incredibly expensive, so try to understand if your loved one has insurance to cover this need or sufficient assets to self-insure. Usually, a surplus of about $400,000 in retirement funds will mean they may be able to self-insure.
Lastly, it’s good to know if your loved one has any life insurance in place. If it is permanent coverage, the life insurance could be accessible during their life and provide a tax-free benefit to solve for financial issues they may leave behind when they pass, like burial costs, debts, and other expenses.
Estate Planning
Lastly, it’s critical to understand if your loved one has done estate planning. At a minimum, they need to have a will in place to dictate their final wishes. However, having a will still subjects many assets to probate. Probate is a lengthy and public legal process whereby the courts dictate how assets are dispersed. It can take years. Probate can be avoided by having a trust in place, putting necessary assets in the name of the trust, and correctly designating beneficiaries on all accounts with a direct beneficiary.
As your loved one ages, it may also be necessary to add in healthcare directives to dictate their medical care preferences and even medical or financial powers of attorney to provide support when they may not be able to make decisions for themselves.
Telling you or another trusted member of your family where to find these documents, along with information needed to access accounts, can make a medical or financial crisis easier to endure.
Conclusion
Discussing these financial matters can help ensure that both you and your older family members are better prepared for the future. It can also provide peace of mind knowing that everyone is on the same page regarding financial planning and management.
This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-7094376.1 (10/24)(exp. 10/28)