No matter how much we try and plan, our financial and life plans will change.
Some Gen X and Millenial members are at the point where they are at a crossroads in their financial planning journey. They could be at their maximum earning years and are aggressively saving for retirement or are updating their strategy as they near retirement.
One thing that might not be on many adults’ minds is a potential unexpected expense, your parents. It’s common for adults to help out their parents financially as they age and cannot care for themselves entirely. Even if you don’t need to care for your parents, by preparing ahead of time, you’ll have the flexibility to do so without completely derailing your financial goals.
In this blog, we’ll cover the process of sorting through both your and your parent’s finances and how to decide on a plan that will work best for everyone.
- It’s essential not to procrastinate on this conversation. The earlier you can make plans as a family, the better.
- Make sure to include siblings in the conversation. Relationships can be strained if one feels as if they’re helping their parents on their own.
- A financial advisor can be an ally in this conversation for your family. They can help facilitate and mediate the discussion to keep things on track and ensure everything gets noticed.
Remember, It’s Not All About Finances
Before diving into the finances, it’s important to remember that this is a potentially challenging conversation with your family. When discussing this topic with your parents, be respectful and empathetic.
If your parents need financial or lifestyle support, it’s likely due to declining health. This can be scary to think about, so be prepared for it to be a potentially difficult conversation. In addition, it can be challenging for you and your parents to process a shift in your relationship from them taking care of you to vice versa.
Be kind and give your family and yourself grace during these discussions and decisions. Lean on your trusted friends and family members and process your emotions together. If you don’t, it could make the decision-making process more difficult.
Knowing Your Options
We’re not diving into finances yet; this is now the time to brainstorm as a family and put all your options on the table. Here are some questions that can help you get started:
Could your parents continue to live in their home?
- Is their home suitable for aging adults' needs?
Could your parents live in your home?
- Is your home suitable for aging adults' needs?
- Is your spouse or partner okay with this?
- Do you have enough space in your home?
Do you have a sibling your parents could live with?
- Is their home suitable for aging adults’ needs?
- Is their spouse or partner okay with that?
- Do they have enough space in their home?
- How will this impact your relationship with your sibling?
Do any housing options require renovations or updates to suit aging adults' needs?
- Who will be responsible for associated costs?
Do you anticipate your parents needing services from a long-term care provider or facility?
- How does this affect your housing plans?
Of course, all of these different routes have unique financial implications. It’s time to dive into the financial analysis!
Assessing Your Parent’s Finances
It’s no secret that finances can be hard to discuss, so empathy and grace are required during this financial deep dive with your parents.
Establishing what type of insurance coverage your parents have is a great place to start. Here are some questions to get the conversation rolling:
- Do your parents have long-term care (LTC) insurance?
- Are their estate planning documents in place and reflective of their wishes?
- What type of health insurance coverage do your parents have?
- Do they have a health savings account (HSA)?
- Do they qualify for Medicare or Medicaid?
- Do they have accessible funds for items not covered by insurance (prescription medications, visits with specialists, etc.)?
Let’s dive into the nuances of some of these topics you may be unfamiliar with.
Long-Term Care Insurance
This type of insurance can cover all or part of the costs associated with care for activities of daily living either in the home or in an assisted living facility.
LTC is nice to have but can be expensive. In 2020, the average annual premium for a couple aged 55 years old was $3,050, and these premiums can increase while you own the policy.
If your parents don’t have LTC insurance and want it, it’s not too late! But, just know that their premium may be higher due to an older age.
Health Savings Account
This tax-advantaged savings account covers qualified healthcare costs like prescription drugs, copays, etc. It’s only available to those with a high deductible healthcare plan (HDHP), so your parents might now have one.
HSAs are also great because the funds always stay active. Contributions are excluded from your taxable income, and they grow tax-free in the account. But be sure to note that they do have annual contribution limits. In 2023, the limit is $3,850, $7,750 for families, and a $1,000/year catch-up after age 55. These can also be used to pay some Medicare premiums. It’s also important to keep in mind that your parents cannot continue to contribute to an HSA after they’re eligible for Medicare.
Medicare & Medicaid
Medicare covers those age 65 and older, and people with certain chronic conditions or disabilities. We won’t get too into the weeds on the details, but know that Medicare has three parts - A, B, and C (Medicare Advantage). “Original Medicare” is parts A and B and includes inpatient and outpatient hospital services. Part C, or Medicare Advantage, covers prescription drug coverage and dental, vision, and hearing care not included in Original Medicare.
Medicaid is designed for those that have low income. It covers things like hospital stays and treatments, and routine care.
Remember, your parents aren’t eligible for Medicare until they reach the age of 65 or have specific disabilities, and Medicaid is only available to those that meet the income requirements.
Now would be the time for you to discuss your parent’s retirement savings and their available disposable income. This is important because it can help you narrow down what types of care, renovations, etc., they can afford independently.
After all of their cards are on the table, this is where you come in.
Assessing Your Finances
Like you would do with any financial inventory or check-in, looking at your existing recurring costs is a great place to start. This includes your mortgage payment, student loan payment, utilities, childcare costs, insurance premiums, etc.
Then, take inventory of what you need to do in order to reach your financial goals. Walk through these questions to determine what funds you have available to help your parents.
- How much do I need/want to contribute to my retirement savings?
- How much do I need/want to contribute to my HSA?
- Do I need to contribute to an emergency fund, or do I have one already?
- Do I need to pay off any debts?
After this, you should have a good idea of what funds you could have available that could be used to help your parents.
Don’t Forget About Your Siblings
One way that sibling relationships can be strained is if one person feels as if their sibling isn’t “pulling their weight” or not helping their parent’s in the same way you are.
It’s important to remember that they may not be in the same financial situation as you and may not be able to help in the same way you can. But be sure to walk through the same financial inventory process with them to see where they stand regarding being able to assist.
Coming to a Decision as a Family
When all is said and done, this is a decision you’ll have to make as a family. Financial and health-related conversations can be difficult, so it’s important that you don’t procrastinate this conversation.
In addition, don’t be afraid to bring in a financial professional to help facilitate or mediate the conversation.
If you need help navigating your financial plans or are unsure if you’re in a place to help care for your aging parents, please contact us and schedule a time to chat today.