Few things can prepare a person for an ailing parent. Leslie Thompson, managing principal at Spectrum Management Group in Indianapolis, recently had a client dealing with his father’s own declining health, as dementia and other physical ailments set in.
Although the father lived in a duplex connected to the son’s family home, it was clear he needed more attentive care. But, now his father’s caregiver, the adult child had to take on more of a role in figuring out what his father could afford.
Thompson’s client faced a situation that more and more adult children must tackle. A report from TD Ameritrade last year found that 20 percent of millennials have to support an aging parent. And more than 40 million Americans are caregivers to someone over 65, according to Pew Research.
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But this support can have a drastic impact on someone’s own savings, leading to retirement troubles down the line.
“It’s similar to the question, should you help your kids in college or (focus on) your own retirement savings,” Thompson says. “It’s important for the adult child to make sure their own retirement is on track.”
Doing so requires a level of planning from the adult child. Avoid these issues that may come to mind when facing the unfortunate position of caring for an ailing parent.
Don’t shy away from financial conversations. The best way to protect one’s finances when caring for parents is ensuring they have their finances in order prior to needing a caregiver. This conversation is something many parents avoid and adult children don’t encourage.
“It can be a really touchy conversation,” Thompson says. “For some families, talking about financial matters is pretty taboo.”
Instead of discussing it one-on-one, hire a third party, whether it’s a financial advisor or a lawyer, to outline options if the parent’s health begins to suffer. This will help ensure the right power of attorney provisions are in place for when the parent can no longer safely manage their finances.
This conversation can get more complicated, depending on the number of siblings involved. But going through a third party ensures there’s an impartial point person that can handle any questions. This keeps everyone on the same page, even if one child takes the lead on caring for a parent.
In situations where an adult child needs to ascertain some basic information about a parent’s financial security, Thompson advises adult children to position it as trying to get advice. One should ask them what they do for setting up a power of attorney, long-term care insurance or other financial specifics, as if the adult child needs to know for her own purposes.
In the case of Thompson’s client that had a parent with dementia, the father and son met with an attorney to help create power of attorney for the adult child. While doing so, the lawyer discovered that the parent was a veteran, which provided him with a Veteran Affairs perk that offered some financial assistance. It’s something neither the father nor the son would have known about without meeting with someone first.
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Don’t forget the retirement plan. When taking on the burden of financially supporting a parent, one of the initial thoughts may be to reduce retirement savings, in order to ensure that there’s more money coming in. But that’s a move that most financial advisors would strongly urge not to take.
“Do not ignore the retirement plan,” says Karen Cunningham, president and founder of the Oklahoma Financial Center. Continue to add the maximum one can “because this is the highest earning years and last chance to earn as much money as possible.”
As one moves along in their career, peak earnings typically hits in the early-to-mid 50s, according to the Federal Reserve Bank of New York study. But the average caregiver is 49. That time period when one makes more, allows the chance to stuff more savings into a 401(k) and other retirement vehicles. By reducing the savings rate, then the adult child’s retirement planning becomes more perilous.
“There’s no way to retire if you don’t have the cash to do so,” says Cunningham, but there are resources to help an elderly parent. There are agencies and organizations available, including Medicare, Medicaid, adult day care centers and community tools like Meals on Wheels that specifically work toward protecting elderly and the infirm. Researching those options can provide a parent with great care, while not sacrificing the adult child’s financial future.
Don’t embrace shortcut solutions. As parents sell down assets such as the family home, there’s a temptation for the caregiver to intermix the finances, even with good intentions in mind. After all, it’s easier to manage one account as opposed to many. But it would lead to problems with taxes, since the parent would need to essentially gift the assets to the caregiver. Plus, there are potential Medicaid complications, depending on the state. “Keep them separate,” says Thompson, who added that it could also bring suspicions that one plans to take advantage of the parent.
Another shortcut tactic to avoid: taking out 401(k) loans or refinancing a mortgage in order to pay for care. In the case of the 401(k) loan, there’s a maximum limit to the amount one can borrow at $50,000 and it has to be paid back, or else it gets converted to normal income, which would add a significant amount of taxes. With the average cost of a semi-private room in a nursing home being $6,235 a month, that money would go fast. Instead, tap the community resources to help manage the expense.
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In fact, one of the best tactics is downgrading the expectation that one should financially support the parent. It’s not because caregivers shouldn’t care about their parents, but because the parents have other options. It’s the job of the caregiver, instead, to find the best options that a parent can utilize.
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How to Manage Family Finances While Taking Care of an Elderly Parent originally appeared on usnews.com
