Does caring for aging parents have to dampen your financial future and leave you broke? Here's how good kind sons and daughters can be proactive in helping your loved ones but without killing your own financial prospects.
It always comes as a shock when we discover that our parents are human. As children, we see them as all-knowing and all powerful. As adolescents, we regard them as tyrannical ignoramuses with the worst taste ever. Then as we grow into adulthood we learn that the truth is somewhere in between, that these folks are people with their own strengths and weaknesses just like every other individual on the planet. In most cases, mutual forgiveness, respect and understanding ensue. But then comes an even bigger shock with the realization that our parents are mortal beings who are, or soon will be, facing the vulnerability, rigors and indignities that come with old age.
Some parents have been good with their money and saved diligently for their retirement but just as many -- and we're talking huge numbers here -- have not. Though it's rarely explicitly stated by elders, there is a prevailing sentiment, "Well kids, we footed your bills for 20-some odd years and paid for college, so now it's your turn pick up the slack and pay for our care now."
This situation has become an uncomfortable reality for those whom demographers call the "Sandwich Generation" with both children and elderly parents demanding time, money and TLC. As a Certified Financial Planner™, I work with many people in this situation and I see the toll this takes on their own health and financial futures.
Some fear that their parents won't be able to retire at all because the money just isn't there and Social Security payments can be paltry to a fault. Others less well-off may be forced to leave their jobs to care for an elderly ailing parent, never fun, which is often financially devastating. And if one or both parents have to enter a nursing home (to the tune of $100,000 or more a year for a private room each*), it can spell financial catastrophe for even the wealthiest offspring.
Case study: Caring for your parents, while maintaining your path to financial independence
Chris had it all; excellent marriage, two great kids, terrific job, beautiful home and, for a long time, healthy parents enjoying their retirements on the golf course. Generous to a fault, he had always been the golden child paying for fabulous multi-generational family vacations to wonderful locales. Money was never an issue, that is, until his father got sick and needed around-the-clock home care. His parents' savings were soon depleted and Social Security covered very little. On paper, Chris could "afford" to pay for the care, assuming he cut back dramatically, stopped saving for retirement and dipped into his kids' college fund. And nobody would be taking vacations to anywhere any time soon.
The good news was that his father's illness was not life threatening. But the bad news was he would be needing 24/7 home care for quite some time. And if Chris' mother should also fall ill, there was no way he could cut his budget back far enough to care for both. After one to many argument with his spouse and parent he came to me if for no other reason than to have someone to vent about how challenging caring for his parents and his family was on him.
What could you do if you were faced with a situation similar to Chris's above?
You could take the proactive step and develop a plan to make sure both his parents would be cared for in the manner he wished them to be, all the while keeping your family on track for your important financial goals. In his case, you might want to consider getting coverage on one or both parent for to help offset the high cost of nursing homes or in home health care. Likewise the plan should include how Chris and his family can stay on track for their own financial goals, while still providing for his again parents.
If all this is making your head spin, don't feel bad, it's complicated, and about as fun to deal with as a root canal. The point is, there are many different types of insurance products that can provide financial benefits due to death or illness. These benefits can allow you to continue to focus on your own goals (retirement, college cost, financial independence, etc.). Consulting with a financial professional can help you determine if these products may be right for you specific situation. Not all policies are created equally, or provide the same benefits.
Policies on the table: You have to get coverage before you actually need it.
While buying insurance at any age may not be the most pleasant experience, if handled well can be fiscally fabulous for everyone involved. What type and cost of the policy you buy for your parents will depend heavily on their ages as well as their health. Just to be clear, we aren't talking about taking out a huge Life Insurance policy on them and then running them over with a car (it happens...) Rather, this is about protecting your nest egg from the eroding effects of caring for elderly parents, as well as a potential a "reimbursement" for all the money you've shelled out for it.
A Fiduciary Certified Financial Planner™ may be able to help you navigate your way through all the ins and outs of the various policy options. (Life Insurance? Long Term Care Insurance? Pie in the sky with a hope and a prayer? Lots of lottery tickets? Just Kidding) Figuring out what kind of plan to secure for your parents' care isn't for the faint of heart; it's not only financially complicated but emotions are frequently turned up to 11 as well.
Should I consider buying coverage on my parents?
When consulting with a client about a senior parent's care, I take into account the elders' financial situation as well as the budgetary state of the clients themselves. Bottom line, this is a way for me to help increase the financial independence of my clients' own overall fiscal plan so they can avoid as many obstacles as possible and stay on track for their various goals and financial freedom.
Here's how you should think about whatever policy is right for you and your parents: You can sleep easy at night knowing that if the worst happens and someone needs to spend a good amount of time in the nursing home, they're covered. And for that matter you're covered as well. That and you have the freedom to take time off work to spend more time with your ailing loved one if you need to. Also, if you are subsidizing your parents financially in retirement you can use the insurance to help catch up on your own retirement, from all the years of saving less because you were supporting them.
I myself hope to live to about a hundred then die peacefully in my sleep on my own bajillion-thread-count sheets at home, in bed, after a big, beautiful fattening meal with family and friends. But the sober reality may not be so optimistic. Odds are my husband or I will need Long Term Care or at least a major medical expense or two at some point in our lives. Maybe we will both be lucky, maybe we won't. But either way, the one thing we're not going to do is leave it up to chance. Because we're investing in the right kind of insurance policies, we've got each other covered. You can do the same for yourself and your folks.
Until next time, as always my friends, Be Fiscally Fabulous!
DAVID RAE, CFP®, AIF® is a Los Angeles-based retirement planning adviser with Trilogy Financial Services, a regular contributor to the Advocate Magazine and a financial planner proudly serving the community for over a decade.
Other articles you might find useful:
Working Funds: 3 Ways to Cash in on Life Insurance for Retirement
The Rich People's Roth -- Is It Right for You?
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Additional advisory services offered through Trilogy Capital, a Registered Investment Adviser. Trilogy Capital Trilogy Financial Services and NPC are separate and unrelated companies. The opinions voices in this article are for general informational purposes only. They are not intended to provide specific advice or recommendations for any individual and do not constitute endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on individual's goals time horizon and tolerance for risk. Guarantees are based on the claims paying ability of the insurer.*Genworth 2015 Cost of Care Survey $100,000 estimated Median Annual Cost in California for a Private Room