Contributed by: Sandra Adams, CFP®
More of us are living in a new reality. One in which we are working and caring for our own families while simultaneously facing the needs of aging parents. It is not uncommon that our older adult parents have simply "fallen" into their retirement without a real plan. Many became retirement age and decided it was time to retire without any real certainty that they had enough income and assets to support their plan for their lifetimes. In their minds, they felt secure with what they had, did not spend all that much, and would make it work — no worries. But now that you are more involved and are helping them as they get older, it worries you that they have never really planned. What should you do?
Just as you would think of planning for yourself to make sure that you are on track for your future financial goals, it makes sense to help your older adult parents get their financial ducks in a row. It is never too late for them to make sure they are on track and to adjust and find resources if they are not.
To start, it makes sense to find a financial planner who specializes in longevity planning to work with your parents. You will want to make sure that the planner will be able to review your parent's full financial plan (the technical side of the plan) in addition to looking ahead at aging plan considerations that may come into play for your parents in the future.
What should be included in the plan?
Review of Net Worth and Financial Assets – it is important to review what assets are held, where they are held, and what the registrations of those assets are. It is here where we can identify opportunities for simplifying the investment assets holdings, inconsistencies in investment account registrations, etc.
Review of Income, Cash Flow, and Debt Items – it is important to review where income currently comes from, how much income is needed to support normal cash flow needs, and any debt items. The more a client(s) have in guaranteed income sources (Social Security, pensions, annuity payments, etc.) towards their retirement income needs, the stronger their overall plan will be.
Review of Overall Retirement Cash Flows — the ability to fund their retirement incomes over time with the income and assets that they have available. Here, it is important to be realistic about future life expectancies, ongoing inflation, and returns on any investment assets that are available. The major unknown here is the possible need for Long Term Care in the future, especially if no Long-Term Care insurance is available.
Review of the Investment Portfolio — for many older adults, we find that there is a measure of extremes. Either they have left their portfolios extremely aggressive from when they were working and never adjusted them, and thus they are taking on way more risk than they should be at their age and stage of life, OR they are extremely conservative and almost all in cash, CDs and bonds and they are at risk for not being able to keep up with the cost of living. Either extreme could be detrimental to a retirement plan long term.
Review of Risk Management – review of insurances on an ongoing basis is more important than many people realize. This means everything from reviewing personal lines insurances to ensure that liability coverages are sufficient, to ensuring that life insurance policies are still relevant and understood, and that any riders on those policies are documented for future use (i.e., long-term care, etc.).
Review of Estate Planning – reviewing and updating of estate planning documents on a regular basis is particularly important, especially as clients get older. Powers of Attorney should be regularly reviewed so that the older adult can ensure that those they have named are still the people they wish to manage their affairs if they cannot act on their own behalf. Trust and/or Will provisions should also be reviewed regularly to make sure that wishes have not changed and/or do not need to be updated. In addition, beneficiary designations and investment accounts should be reviewed regularly to make sure that they are consistent with your estate plan.
Longevity Planning – Reviewing your current and future challenges, alternatives, resources, and desired experience as it relates to finances/money, housing, and care should be part of the planning with your older adult parents. Planning AHEAD is crucial here for both you and for them. For them, this gives them the most amount of control over their future aging life. For you, this helps you to help them plan, saves you from guessing their wishes, and helps make decisions easier as things change for them going forward. An aging plan should include some specific resources and action steps that can be reviewed and monitored as time goes on.
Since you are an active participant in your parent's care and their planning for the future, we encourage you to be a part of their planning process if they are open to that. Having open communication amongst the family as clients age makes the planning process a much better process for all involved. If helping your aging parents with longevity planning is something you are interested in doing, please feel free to reach out to us for help: Sandy.Adams@Centerfinplan.com
Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Sandy Adams, CFP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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