How to Handle Your Aging Parents' Finances

Five tips on planning Mom and Dad's financial future.

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It's not an easy subject to discuss: As aging parents start to slow down, more of their children—often baby boomers nearing retirement themselves—are tasked with planning mom and dad's financial future. The transition can be difficult, but early planning and open lines of communication between generations can go a long way toward making sure the entire family can enjoy their golden years together.

Start the conversation early. When roles reverse and parents are forced to rely on family for financial help, experts say many aging parents feel they're giving up control to their children. That's why it's important to develop an open, trusting relationship with your parents regarding money well before any crisis hits. "The key is to get that conversation started fairly early. I don't think the key issue is how you mix your stocks and bonds, it's how to get the conversation between the generations started in a calm, noncrisis atmosphere," says Neal E. Cutler, a long-time financial gerontology expert and executive director of the Center on Aging, a research arm of the Motion Picture and Television Fund. That includes discussing basic issues with parents regarding where they want to live if their health starts to decline. Will they move into a nursing home? Head for sunnier climes? Do they want to be near family, or their church? Families can estimate the costs together. If parents are unwilling to talk about money, Cutler recommends that children come at them sideways with stories of friends in similar situations, or frame questions as a way to make sure grandchildren are provided for. "The key is to make it clear you're not trying to steal their money or tell them how to invest their money because they're not competent," he says. It's important to keep the money discussion civil over time. "It all depends on how close middle-age kids are to their parents," he says. "If there was a total rupture over the past 20 to 30 years, you can't just walk in and say, 'Let's talk about your money.' "

Rethink your investments. The fortunes of aging parents must also be a consideration in their children's retirement plans and should be factored in when the younger generation is deciding how to allocate assets. For example, by the time most Americans are ready to retire, common investing wisdom dictates that a sizeable chunk of retirement assets might be in fixed-income investments, with smaller chunks in stocks and cash. An ailing parent might require shifting more money to cash in order to pay their near-term bills—and possibly postponing retirement for a year or two in order to cover the subsequent shortfall. "You really do have a choice to make: Is it them, now, and you'll have to delay your retirement plan? It's a tough choice to make," says Colleen Schon, a senior vice president with Raymond James & Associates in Auburn Hills, Mich. She says most children underestimate the cost of funding the care of an aging parent. She says a $500,000 portfolio may seem like a lot but will cover only about 8½ years in an assisted-living facility. If your parents are in their 70s, and their parents lived well into their 90s, the chances of a sizeable financial hit are very real.

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Do something for long-term healthcare. Some 40 percent of people over age 65 will spend time in a nursing home, and the costs can be substantial. A recent survey by Genworth Financial shows the national average median monthly cost for a private room in an assisted-living facility is $2,825. To cover that cost, some extra security in the form of long-term care insurance may be in order. Medicare and Medicaid programs don't cover most middle-class retirees when it comes to long-term care. Insurance can be purchased at reasonable rates and at a fraction of the costs of even just a few months in a nursing home. Cutler says planning for long-term care is vital because it's among the biggest worries that keep children up nights worrying about parental healthcare-related costs. He notes that many older Americans have fairly stable retirement income from some combination of pension plans and Medicare, but the higher cost of long-term care isn't covered by those plans. "It's a bigger unknown, and it's less predictable," he says.