When we're young, our parents try to help us manage our money effectively. But as our parents get older, the tables are likely to turn.
"Older adults face a variety of challenges: They may feel less confident making financial decisions. They may have a harder time understanding their bills and brokerage statements. And studies show they have a greater chance of being targeted by financial scams," says Bob Barth, a Schwab wealth strategist based in Orlando, Florida. On top of that, today's retirees are living longer and therefore may need help navigating long-term care and a retirement that can stretch on for decades.
"Adult children can play an important role in helping their parents anticipate potential problems and plan for the future," says Nancy Murphy, a Schwab senior financial planner in Indianapolis. "The challenge becomes figuring out how to do so in a way that feels supportive rather than condescending."
Here are five steps for helping aging parents manage their finances.
1. Start slowly and early
Parents who have accumulated significant wealth over the years may be offended by the idea that they'd ever need help managing their money, so don't be surprised if you meet resistance. That said, the earlier you bring it up, the easier it will be to step in when they do need assistance.
"First, realize this probably isn't going to be a one-and-done conversation," Nancy says. "It's best to start slowly by finding common ground, such as a discussion about recent market performance. That should organically lead to talks about the overall health of their investments and any concerns they might have about the longevity of their retirement savings."
Even if your parents are amenable to help, they may find it uncomfortable to talk about money. "The goal at this stage isn't to get to the bottom of every last detail—it's just to get them talking," Bob says. "Once they become more comfortable discussing the broad strokes, you can move on to more delicate subjects."
2. Alert them to scams
Next, make sure they're aware of the rise in financial fraud and the growing number of scams targeting seniors. In 2020, the FBI's Internet Crime Complaint Center received a total of 791,790 complaints with reported losses exceeding $4.1 billion—approximately $1 billion of which were losses to victims over the age of 60.1
"Generally speaking, older individuals aren't as savvy when it comes to modern technology, so they might not pick up on what seem to us like obvious scams," Nancy says.
For example, if they're not already familiar with today's phishing tactics, explain how to spot them. Make sure they also understand they should never provide their Social Security numbers or other personal details when they receive unsolicited phone calls or emails.
As an extra precaution, you might suggest a power of attorney (POA) agreement to give you or another trusted family member the authority to manage and monitor their financial accounts. With a POA, your parents retain control and ownership over their assets, but their designated agent can sign checks, withdraw funds, and handle other transactions on their behalf.
If your parents are Schwab clients, they can also designate a Trusted Contact that Schwab can reach out to if it suspects fraud or diminished capacity.
3. Talk about health care
With health care costs continuing to rise, a 65-year-old couple would need to save roughly $325,000 to pay for routine medical care in retirement.2 And if one or both of them develop a medical condition, that number could easily double.3
Many married couples assume that one spouse will simply take care of the other should one of them need ongoing care. That’s what Bob's parents thought before both became incapacitated for different reasons. "The idea of taking care of each other becomes less realistic the older a couple gets," he says.
Adult children can help facilitate the discussion by doing some preliminary research into the cost of care, as well as thinking through how insurance or family members might be leveraged to help keep expenses down. "Try to help your parents see it as a form of disaster planning," Bob says. "It's better to be prepared for the worst than to be blindsided by disaster, and health care is no different."
4. Ask about estate plans
As unpleasant as it is to think about, there may come a time when your parents are no longer able to make decisions on their own. That's why it's so important they have financial and medical POA agreements in place, which allow you or other trusted individuals to make decisions on your parents' behalf.
It's also prudent to discuss whether they expect to pass on any assets to their heirs and to review the ramifications of certain types of inheritances, especially retirement assets. "Some older adults are reluctant to share this information," Nancy says. "But the reality is that nonspousal heirs could face real tax consequences that must be planned for."
For example, the SECURE Act now requires most nonspouse inheritors of tax-advantaged retirement accounts to deplete them within 10 years of the decedent’s passing (or face a penalty), which will likely push the recipients into a higher tax bracket.
"But the potential consequences don't end there," Nancy says. "Taking withdrawals from an inherited IRA can affect an heir’s decision about when to retire—and can even increase the costs for Medicare premiums. In a worst-case scenario, it could impact a disabled heir's ability to qualify for government assistance." She adds: "Timing is critical to minimize tax implications."
If you haven't already done so, ask your parents to introduce you to their estate-planning attorney or financial advisor. "He or she can help everyone concerned better understand the rules at play and all the applicable estate-planning strategies," Bob says. "For example, those who plan to pass on large retirement accounts could consider a variety of different trust options to help mitigate the long-term tax consequences for heirs."
5. Include the family
Too often, important discussions between parents and adult kids happen one-on-one rather than as a family—and that can create problems down the road. "We see it all the time," Bob says. "An absentee sibling shows up and starts second-guessing everything."
That's why he urges families to air out issues such as care and estate plans together. "There's a natural tension when it comes to questions about who's going to take care of Mom and Dad," Nancy says. "The best way to avoid any hard feelings is to make sure all relevant parties are included in the conversation."
1 "Elder Fraud Report," FBI's Internet Crime Complaint Center, 2020.
2 "A Bit of Good News During the Pandemic: Savings Medicare Beneficiaries Need for Health Expenses Decrease in 2020," Employee Benefit Research Institute, May, 28, 2020.
3 John Bailey Jones, Mariacristina De Nardi, Eric French, Rory McGee, and Justin Kirschner, The Lifetime Medical Spending of Retirees, nber.org, 07/2018.
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