From the day they are born, parents constantly talk to their children and help guide them through life. These conversations change as they grow but we are constant mentors to ensure they grow up to be responsible adults. As adults with aging parents, the roles reverse and it is important for children to sit down with their parents and have the “talk” so they understand how prepared mom and dad are financially and what their wishes are should any health issues arise.
A new study by GOBankingRates found that 73 percent of people haven’t had the important financial talk with their aging parents. That could be why about a third of Baby Boomers have less than $10,000 saved for retirement.
Cameron Huddleston, author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances discussed with Fox Business why and when you need to sit down with your parents to talk about their financial future. Here is what you need to know.
Boomer: When is the best time to have the “talk” with your parents?
Huddleston: The best time to talk to your parents about their finances is while they're still healthy and relatively young -- ideally, before they retire. You don't want to wait to have this conversation until there is a health or financial emergency or until they're starting to show signs of memory loss.
If you wait until a health emergency to talk to your parents about their finances, it can be too late. They might not have the legal documents -- power of attorney and an advance health care directive -- in place to allow you to legally step in and help out. You won’t have a plan for dealing with the emergency. And emotions will be running high. You and your parents won’t be thinking rationally, and the last thing any of you will want to discuss are finances.
It might not be a health issue that forces you to get involved with your parents’ finances. They might not have saved enough for retirement and will need support from you. They might die without a will, and you’ll have to deal with what’s left behind while family members fight over who gets what. As awkward as talking to your parents about their finances might seem, the consequences of not having the conversation are much worse.
The other big benefit of having conversations with your parents sooner rather than later is that you can talk about issues they might face -- such as a need for long-term care -- in hypothetical terms. You can say, “If something happens, do you have a plan …” When Mom is already losing her memory or Dad has had a stroke and needs round-the-clock care, the conversation shifts from “If this happens” to “How are we going to handle this?” The chance to have a rational discussion is most likely gone now that everyone is in crisis mode.
Boomer: If there is no long term care policy in place is it too late to enroll?
Huddleston: If your parents don't already have long-term care insurance, whether they can get coverage will depend on their age and their health. If they are in their 50s and in good health, they should be able to get coverage at a good rate. If they're older and have some minor health issues, they might be able to get coverage. But they'll have to pay higher premiums. If there's already a dementia or Alzheimer's diagnosis, it's too late.
Boomer: If we have no long term care insurance how can we deal with major health issues?
Huddleston: There are other options to help pay for long-term care. If your parent doesn’t qualify for long-term care insurance because of age or health reasons, an annuity might be an option – that is, if your parent has a large stash of cash to invest in an annuity. A lump-sum payment is made in exchange for a guaranteed stream of income over a specified period of time. With an annuity that has a long-term care benefit, the payout will be more than the amount invested. Your parent still can tap the annuity even if he or she doesn’t need the money for long-term care.
Medicaid also is an option to help pay for long-term care if your parents have limited income and assets. This government program actually is the top payer in the nation for long-term care services. It pays for care in skilled nursing facilities and at home -- but it typically does not cover care in an assisted living facility.
If your parent served in the military, he or she might qualify for the Veterans Administration's aid and attendance program -- which provides an increased monthly pension to cover the cost of care at home for veterans and their spouses -- or veteran-directed care -- which provides a flexible budget for home or community-based care.
Your parents also might be able to access the equity in their home with a reverse mortgage to pay for long-term care. However, reverse mortgages are complex products that can be difficult to understand. So it's important to talk with a financial planner before going down this route.
The truth is, most people who need long term care end up relying on family members to provide that care. If your parents don't have a way to pay for long-term care, it's important to start discussing what role your parents expect you to play in their care and start preparing your own finances. Having to care for a parent can be a full-time job. That means your finances can take a hit if you're not prepared.