5 Financial Considerations When Taking Care of Your Aging Parents

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As I’ve aged and moved into different stages of life, I’ve found that each one comes with its own set of new financial responsibilities and issues. My wife and I got married during residency and we started dealing with how to manage finances as a couple. We had a child two years out of fellowship and so our attention started turning to how we were going to provide for our children both now and in the future. The one area we didn’t spend too much time thinking about or devoting energy to was how we were going to take care of our aging parents financially.

In an ideal world, everything would be all packaged up and ready for you when your parents need your help. However, we know that will definitely not be the case for most people. My father recently retired and as a family, we only started having conversations about my parents’ financial situation in the months before my father retired.

My father was the primary breadwinner and my mother stayed home to take care of the family. Honestly, my parents and I never talked about finances growing up. It just wasn’t something discussed in our household. So that first conversation we had about money was a bit awkward.

As the oldest child in the family, I’ve always felt a sense of duty to make sure my parents are well taken care of and will enjoy a nice retirement. So I simply started the conversation by sharing a bit about my plans for retirement and asked them about their plans. Turns out, they had thought about it quite a bit, but some of the details weren’t quite hammered out.

We had several conversations about this subject over the following months. Each time we ran into new issues to be tackled. Perhaps you’re in a similar place or will be soon, so I figured I’d share five major financial considerations that we discussed over the course of these conversations (that honestly are still going on today).

1) Income During Retirement and Budgeting

The biggest question most of us have about retirement is, “Do we have enough saved once we stop working?” If you’re thinking of retiring early, that calculation can be even more difficult. My father is 69 and my mother 67. Based on Social Security Administration info, the average lifespan of a man who has reached 65 is around 84 and for a woman who’s reached 65 is almost 87. However, we’d like to be conservative and plan for them to live for the next 25-30 years.

Personally, I would figure a way to support them fully if needed if the money ran out. However, both my parents and I want to plan in a way so that support isn’t needed. They live a pretty simple life and aren’t into luxury goods or expensive vacations. They mostly just want to go to places and visit old friends.

I asked them what their expected income in retirement was and they didn’t quite have a number. They figured they’d be okay and expected to just see what it was when they got there. Of course, I wasn’t satisfied with that, so I decided to take a deeper dive.

In brief, their assets and sources of income are as follows:

  • Social Security

    • They’re of a generation where Social Security will most definitely be there for them during retirement. Unfortunately the same can’t be said for my generation. I found out my mother was currently taking social security payments and my father, as the primary, delayed it as long as possible and would start taking it at 70 years old. 
  • Retirement Accounts

    • My father had a 401k from his current employer and an IRA that he had started previously as well. He wasn’t very diligent about making contributions earlier on his career but at least he was later in his career.
  • Real Estate

    • Parents own a home with some equity in it.
  • Cash

    • They had some cash in their account from the sale of a previous home.

Based on these assets, we did a calculation of how much income they would be receiving once full Social Security benefits kicked in and assuming that we’d cash out 4% per year from their retirement accounts (according to the 4% rule). The number was slightly better than their expected budget based on current expenses. In the name of being conservative, we came to a decision that it would be nice to have a little more in the way of cash flow per month that we accomplished by buying some rental property. More on that later…

2) Healthcare

Since my father would no longer be working, what kind of medical insurance would they have after losing their employer’s plan? At his age, he qualified for Medicare but only in looking into it further did I recognize there were multiple tiers, levels, and premiums. I was totally ignorant and assumed Medicare was pretty much one uniform plan. Turns out not to be the case.

So in order to understand their situation a bit, I had to take somewhat of a crash course on Medicare. What that really means is that I googled the term for as much info as I could find. Turns out that my parents have Medicare Supplemental Insurance F which is widely considered the most comprehensive of the Medicare Gap coverages. It covers the deductibles of Medicare A & B, multiple extra charges, amongst other benefits. Sure it was a little more expensive, but they felt worth it considering some things in our family history.

I asked if they had long-term care insurance. I didn’t know much about it except that I had been asked to buy it in the past by insurance agents and remember it seeming quite expensive.

For those not familiar with the term, long-term care is help that is needed by people with chronic diseases and disabilities. This help can range from medical to non-medical, for example, daily life activities like bathing, eating, and dressing, as well as skilled care by nurses or other professionals.

According to the department of health and human services, someone turning age 65 today has ~70% chance of needing some type of long-term care services. However, there are reports that say for those aged 55-60, only 5% of them have long-term care coverage. Why? Because of the cost. The cost of coverage depends on what kind of coverage you sign up for but it can be $2000-3000 per year making it difficult for anyone to purchase.

My father never got it and we decided not to add it at the time. However, he recently has been dealing with an issue where we could definitely use the coverage and he is now paying out of pocket for a good portion of it. I’ve been amazed how high the costs are for this type of care. The cost for an in-house caregiver from an agency can easily be $25 per hour. Imagine for 24 hours coverage, that’s $600 per day, and for one week it’s $4200. Yikes! Yes it’s after the fact and there’s nothing we can do about it now, but we regret not getting long-term care insurance.

3) Estate Planning

My wife and I recently set up a revocable living trust. It doesn’t offer any asset protection but it spells out exactly how we want our assets to be divided if something happens to us.

My parents created a will but had no interest in spending the additional funds for a living trust. The major difference between a living trust and a will is that you still need to undergo probate with a will. Probate is a court-supervised process that helps the estate to get passed along according to the will.

It is also important to name a power of attorney for financial and healthcare issues. When you form a living trust or will, these issues are usually addressed. Thankfully my parents had already considered this issue and named a power of attorney in certain cases.

4) Access to Financial Information

Since they were giving me power of attorney, would I know how to access their records or where to find them if needed? Would I know how to handle their finances, pay their bills, or deal with their taxes?

Fortunately, my parents are at a place where they can handle their finances on their own. However, I’m seeing my older relatives start to have problems with that very issue. It just made sense to discuss the issue before we were forced to.

So at the very least, we decided to organize some important papers and files and put them in a secure location with password protection. They also added my name to some accounts so that if I needed to get access, I could.

5) New Investments

After crunching some numbers as mentioned above, we determined it would be nice to have a few more cash-flowing assets to pad their retirement income. They already had some cash from the sale of their previous home and so we decided to buy some rental real estate.

In fact, I helped them buy three rental properties at the end of last year. We bought the properties with different goals in mind. One was a multifamily property that would be expected to cash flow a good amount in a few years and two properties that would begin cash-flowing a few thousand dollars immediately.

We also decided that in the future, there was no need to take too many other further risks. We decided to not pursue any other higher yield investments and keep the portfolio well-diversified between stocks and bonds.

Final Thoughts

The only thing that you can expect out of life is that unexpected things will happen. Before you know it, your parents may be relying on you for physical and financial help. In a way, it’s actually nice to feel like I can contribute to their well-being. They’ve done so much to take care of me, it’s nice to return the favor.

If you’re getting close to that stage, it may be worthwhile to start thinking about having this discussion. I’m glad we at least talked about it before he retired. It really opened my eyes to true considerations during retirement. It’s one thing to talk about early retirement, it’s another thing altogether to talk through all the issues with someone going through it.

Now I know what you might be thinking – I’ve only mentioned my parents and not my wife’s. That’s true. To be honest, we haven’t really had that discussion with her parents yet and it’s something we need to do and have been meaning to do. Her parents have always been very savvy with finances and so we haven’t quite felt as much urgency. At least it should be a little more of an informed discussion having gone through it once.

If there was anything I’d do differently it’s that I would’ve talked about finances in retirement with my family earlier. So do it sooner rather than later if you can. I know you’ll be happy that you did.

Have you had these types of talks with your family? Any other major financial conditions I should’ve mentioned?

12 COMMENTS

  1. I clicked on this topic so fast! I’m about on the cusps on this whole sha-bang with my parents but it’s harder because I don’t speak their language that well and they don’t know English. Also they have a tendency to refuse to listen or listen to abstract issues like when to take SS.

    Ugh. I’m not looking forward to it because that entire list sounds of half dread to me. I would need to hire a translator firstly.

    My husband’s parents are doing fantastic, pension, house paid off, SS payments, Medicare, all good to go. I might need to call them up to ask him to help with my parents.

    What about funeral proceedings or is that after the fact?

    • Haven’t thought that far ahead and maybe feel even more awkward talking about that. But you’re absolutely right, funeral wishes and costs are definitely something we should talk about. Thanks for bringing that up.

      It’s not easy but these conversations definitely need to happen. I just feel grateful that, like you, one side of the family seems to have it more together.

  2. This is a very helpful post. I am starting to go through this season in my life and at least now i have a few guide posts to help me.

  3. My folks bought long-term care insurance years back. When mom was unexpectedly diagnosed with end-stage cancer a few years ago, it was remarkably helpful. Now dad’s 70 and on his own in the modest house they built in the 80s. He has a healthy pension (more than my wife and I make each year), all his mobility (thanks, yoga!), lots of friends, a living revocable trust, seven figures of assets, and a safe new car; so long as he can drive he’s in good shape.

    Our house is ill-suited for more than two people, but there’s a condo building literally on our block… and we’re in a very walkable part of town. It’s just a function of when dad feels like he isn’t up to driving, or dealing with a house on an acre and a half anymore. We’d love to have him nearby and I’m hopeful that we can make FIRE happen while he’s still around.

    • Thanks for sharing your experience. Sounds like you’ve done an amazing job thinking through your family situation. The community aspect is huge and something that we’re struggling with as we’re trying to relocate my parents all the way across the country.

  4. This is a very important topic that isn’t talked about much. Great post.

    My parents are completely retired and from talking to them superficially, it seems like they are set up pretty well financially. They also have a family trust established too. But I haven’t delved too much to really know. Maybe I should do a deep dive. It might help educate me too if I asked them.

    My wife’s parents are a different story. They are still working really hard for pay that is not very high. And we have no idea what their plans are financially when they retire or can no longer work. It’s hard to bring up, but we will have to do it at some point. Probably should do it soon.

    For our own family, we just had a baby girl. And we are planning to have one or two more over the next few years. Should we wait until we are done having kids to start the process of establishing a revocable living trust? Or is it wiser to start now? I know it will cost a few thousand to initiate, but it’s another weird topic to think about too.

    I hope your father is recovering well. Fortunately he has access to good care and he has the love and support from you and the family.

    Thanks again for the informative post.

    Best,
    Dr. McFrugal

    • For the trust – in my opinion you should have it created as soon as possible. You can always amend and there are provisions for if you have multiple children. If you’re going to do it eventually, it’s better to do it now because it’s not a fun process moving assets into the trust. Easier to establish new bank accounts and new investments in the name of the trust to begin wih.

      Good luck talking to the wife’s parents. Yes I agree, better sooner than later. The longer you have to plan for it, the easier it will be when you get there.

      Thanks for the well wishes.

  5. My dad works for New York life and specializes in estate planning so they are covered. Generous pension, still working, modest lifestyle, some passive income from bank stock my grandpa founded.

    I do need to ask about long term care insurance. The family got burned on this with my grandparents.

    I am interested in the trust you described. I have “make a will” on our to do list for when we move States this year. Perhaps I should forego the will for the trust.

  6. My parents asked me to help with their finances about 3 years ago, when they were 75yo. My husband and I were on our way to FIRE. After looking at their investments which were being managed by a financial advisor (who charged huge fees with terrible returns), we fired the advisor and ultimately I ended up helping them switch their investments to a simple Vanguard portfolio. In the process they have asked me to assist them in all of their financial matters and we have had to troubleshoot some other issues they weren’t even aware of. While I can easily find tons of info on how to manage our own finances, it has been a huge learning curve to figure out the best way to navigate health care/finances/legal issues for a whole different generation. I feel like I have had to learn everything twice! However I feel like in the end this will help us down the road as we get older ourselves (currently in our 40’s). It has been exhausting but I am very happy to know that we were able to help them and have a great handle on anything that will come up in their remaining years.

  7. Good post! Not one you see much around FIRE-sphere. I am actually going through something similar myself. It all just happened all of a sudden…sort of. Was named power of attorney, but what if the person is combative and unwilling to talk about finances. Sigh. Had tried a bit when they first retired, but was dismissed. Now she can’t remember HOW to pay her electric bill… “I just don’t know how to do it.” Frustrating on both parties. Good for you for having that open line of communication.

    • You’re right, it’s one thing if your parent is totally incapacitated. It’s tougher to know how to handle the situation when it’s a matter of making extremely poor decisions with their own finances or health. What I would love to know is if there is an intermediary to help with that sort of thing.

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