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What It Means to Be a Financial Caregiver for Your Parents

If you are the adult child of aging parents, you may find yourself in the position of someday having to assist them with handling their finances.

Whether that time is in the near future or sometime further down the road, there are some steps you can take now to make the process a bit easier.

Mom and Dad, can we talk?

Your first step should be to get a handle on your parents’ finances so you fully understand their current financial situation. The best time to do so is when your parents are relatively healthy and active. Otherwise, you may find yourself making critical decisions on their behalf in the midst of a crisis.

You can start by asking them some basic questions:

  • What financial institutions hold their assets (e.g., bank, brokerage, and retirement accounts)?
  • Do they work with any financial, legal, or tax advisors? If so, how often do they meet with them?
  • Do they need help paying monthly bills or assistance reviewing items like credit-card statements, medical receipts, or property tax bills?

Make sure your parents have the necessary legal documents

In order to help your parents manage their finances in the future, you’ll need the legal authority to do so. This requires a durable power of attorney, which is a legal document that allows a named individual (such as an adult child) to manage all aspects of a person’s financial life if he or she becomes disabled or incompetent.

A durable power of attorney will allow you to handle day-to-day finances for your parents, such as signing checks, paying bills, and making financial decisions for them.

In addition to a durable power of attorney, you’ll want to make sure that your parents have an advance health-care directive, also known as a health-care power of attorney or health-care proxy.

An advance health-care directive will allow you to make medical decisions according to their wishes (e.g., life-support measures and who will communicate with health-care professionals on their behalf).

You’ll also want to find out if your parents have a will. If so, find out where it’s located and who is named as personal representative or executor. If the will was drafted a long time ago, your parents may want to review it to make sure their current wishes are represented.

You should also ask if they made any dispositions or gifts of specific personal property (e.g., a family heirloom to be given to a specific individual).

Prepare a personal data record

Once you’ve opened the lines of communication, your next step is to prepare a personal data record that lists information you might need in the event that your parents become incapacitated or die.

Here’s some information that should be included:

  • Financial information: Bank, brokerage, and retirement accounts (including account numbers and online user names and passwords, if applicable); real estate holdings
  • Legal information: Wills, durable powers of attorney, advance health-care directives
  • Medical information: Health-care providers, medication, medical history
  • Insurance information: Policy numbers, company names
  • Advisor information: Names and phone numbers of any professional service providers
  • Location of other important records: Social Security cards, home and vehicle records, outstanding loan documents, past tax returns
  • Funeral and burial plans: Prepayment information, final wishes

If your parents keep some or all of these items in a safe-deposit box or home safe, make sure you can gain access. It’s also a good idea to make copies of all the documents you’ve gathered and keep them in a safe place.

This is especially important if you live far away, because you’ll want the information readily available in the event of an emergency.

Don’t be afraid to get support and ask for advice

If you’re feeling overwhelmed with the task of handling your parents’ finances, don’t be afraid to seek out support and advice. A variety of local and national organizations are designed to assist caregivers.

If your parents’ needs are significant enough, you may want to consider hiring a geriatric care manager who can help you oversee your parents’ care and direct you to the right community resources.

Finally, consider discussing the specifics of your situation with a professional, such as an estate planning attorney, accountant, and/or financial advisor. Click here to get more information from our affiliate company PLJ Advisors.

 

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The #1 Concern for Retirees – And Why They’re Getting It Wrong

One of the big eye-openers of adulthood is when roles reverse and the child must care for the parent. It’s one of the toughest problems we face as we get older – especially when our parents don’t have any long-term care plans or money set aside.

A Painful Balancing Act: Long-Term Care Choice and Budget

Finding the balance between securing safe, comfortable care for elderly parents and paying for it can be almost impossible. Many people are surprised to discover that Medicare doesn’t cover long-term care costs, also known as custodial care.

This type of service includes daily living assistance such as:

  • Bathing
  • Eating
  • Chores and housework
  • Going to the bathroom
  • Moving around

If you’re working full-time, raising children and responsible for your parents’ daily needs, this can be an overwhelming load. Now imagine you’re the parent – and your children have to make these decisions for you.

The #1 Concern: What Will Happen When I Can’t Care For Myself?

According to a recent survey by the Society of Actuaries, long-term care is tied for first place as the number one concern of retirees. The other concern is inflation.1

It’s not a big surprise that most people rank this as their chief worry. If you have had to make long-term care plans for a loved one, then you know how expensive it can be. Not to mention, the better facilities cost more money.

This comes with another set of questions: Will my loved one be properly cared for? Will my mother be neglected? Will my dad be happy and stimulated? What will their quality of life be like?

These questions are naturally applied to ourselves, too. We want to receive great care when we can no longer care for ourselves. We recognize that just because our bodies aren’t working optimally, our minds still crave stimulation and engagement. We want to retain as much control over our lives as possible.

The reverse is also true. How will we be cared for if we are unable to make decisions? These are not things we want to think about – especially while we’re young, healthy and active… but that’s precisely when we should be thinking about them.

For Women, Planning Is Particularly Important

Women more than men should consider preparing for long-term care. A gender gap in health means that figuring out how to pay for custodial and medical services is especially important for females. There are three major reasons for this:

➢ Women live, on average, 5 percent longer than men.2
➢ Because women outlive men, widowed women can’t depend on spouses to care for them.
➢ Women suffer from chronic diseases more than men do.3

The Worry Is There, But Not the Preparation

The staggering result of all this worry is that most people do little to nothing to prepare. In addition to not preparing, the Actuary survey showed that pre-retirees underestimate life expectancy. In 2015, the median of pre-retirees stated that they will live until 85, despite the fact that 55 percent of those reported at least one family member living past 90.

As far as a financial strategy for long-term health care, only 33 percent of those surveyed purchased a guaranteed lifetime income product.

“In terms of a planning horizon, 17 percent of pre-retirees plan for five to nine years, and 19 percent plan for ten to 14 years. By comparison, 38 percent of pre-retirees have either not thought about their planning horizon or do not plan ahead.”
– 2015 Risks and Process of Retirement Survey

More Expensive Than a Mortgage

In 2016, the average cost of a private room in a nursing home was $7,698.4 This is almost six times the amount of the average monthly mortgage payment.5

Although assisted living facilities are about half as much as a nursing home, they’re still expensive at $3,628 per month, especially if you’re on a fixed income.

Will You Need Long-Term Care?

There are no guarantees when it comes to health – which means you should plan on needing it and try to live a healthy lifestyle so that you don’t.

The numbers, however, point to the fact that more than half of us will need some form of assistance as we get older.

➢ In 2012, nine million Americans over the age of 65 required long-term care. That number is projected to jump to 12 million by 2020. 6

Considering Your Options

1. Long-term Care Insurance

Long-term Care Insurance is one of the most popular options as it drastically reduces the cost of care if you need it.

The American Association for Long-Term Care Insurance reports that the average married couple, age 55, would pay $1,816 per year for a policy with $162,000 in coverage for each. A 3-percent inflation protection rider is also available for about $1900 more per year.7

The earlier you lock in a rate, the better. A good time to invest in this insurance is around age 52.

2. Life Insurance With a Long-term Care Rider

This might be a good option as there are a couple more benefits with this option than a traditional long-term care insurance policy. Basically, you will get the death benefits that come with a life insurance policy, you will pay about the same – or less – in monthly payments – and enjoy approximately the same coverage you would receive with long-term care insurance through the rider.

3. Fixed Index Annuity

A fixed index annuity with a single premium is yet another route to take on your way to long-term care preparation. Some annuities offer a long-term care doubler benefit which pays twice as much per month as it would if you were not in long-term care. This is an amazing perk and one that could save you tons of money down the road.

Bottom Line

Don’t wait to get ready for long-term care. Even if you are running marathons in your 60s, the time might come when you need some form of assistance. It’s better to have a plan in place now than to rely on your children or social services to help you later.

If you need help deciding if long term care is for you or your parents, we are here to help. Click here to request a call or call us at 310-824-1000 and ask for Caroline. She’ll be happy to set up a time in our calendar.

 

1https://www.soa.org/press-releases/2016/survey-examines-retirement-concerns/
2http://www.bbc.com/future/story/20151001-why-women-live-longer-than-men
3http://www.cwhn.ca/en/resources/primers/chronicdisease
4https://www.genworth.com/about-us/industry-expertise/cost-of-care.html
5http://themortgagereports.com/20589/freddie-mac-mortgage-payments-homeownership-costs-may-2016
6http://www.forbes.com/sites/jrose/2016/03/22/long-term-care-insurance-alternatives/#1af57501a192
7http://www.cnbc.com/2016/03/15/long-term-care-coverage-peace-of-mind-at-a-price.html

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Ask the Expert: Can I Retire Early?


Ask a PLJ Income Strategist Expert!

Question: Can I retire early? Is it possible? What do I need to do?

-Barbara from Los Angeles

Answer: Yes Barbara, there are ways that will allow you to consider early retirement, but there are some things you must consider. Retiring early means:

  1. fewer earning years
  2. less accumulated savings
  3. freedom to do more activities that could add to your living expenses – activities that you couldn’t do when you were working – such as traveling, social events, dining out, etc.

Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. Depending on how early you actually retire, you may find that you’re going through those retirement accounts more quickly than you had originally intended. This could pose a problem both for your later retirement years when you need income the most.

The first thing I want you to do is to project your retirement expenses

  1. know when your retirement will likely start
  2. how long it may last, the type of retirement lifestyle you want
  3. estimate the amount of money you’ll need to make it all happen

One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll need to save by the time you retire. Focus on your actual expenses today and think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire. While some expenses may disappear, like a mortgage or costs for commuting to and from work, other expenses, such as health care and insurance, may increase as you age. If travel or hobby activities are going to be part of your retirement, be sure to factor in these costs as well.

Don’t forget to take into account the potential impact of inflation.

Remember, what you spend today will not be the same from what you spend 15 years down the line, even if you purchase the same items.

A longer retirement also means inflation will have more time to eat away at your purchasing power. If inflation is 3% a year (its historical average since 1914) it will cut the purchasing power of a fixed annual income in half in roughly 23 years. Factoring inflation into the retirement equation, you’ll probably need your retirement income to increase each year just to cover the same expenses.

effect of inflation on milkSource: jemstep.com

Second, identify what sources of retirement income will be available to you to meet those needs.

When you compare your projected expenses to your anticipated sources of retirement income, you may find that you won’t have enough income to meet your needs and goals. Closing this difference, or “gap,” is an important part of your retirement income plan. In general, if you face a shortfall, you’ll have five options:

  • save more now
  • delay retirement or work during retirement
  • try to increase the earnings on your retirement assets
  • find new sources of retirement income
  • or plan to spend less during retirement

Third, you must take longevity into consideration.

How long will you need your retirement savings to last? We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. The problem is particularly acute for women, who generally live longer than men. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago. To guard against the risk of outliving your savings, you’ll need to estimate your life expectancy.
[FREE Download] How To Retire Early Package!

Remember;

  • The longer you delay retirement, the longer you can build up your retirement savings.
  • Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early?
  • If you work part-time during retirement, you’ll be earning money and relying less on your retirement savings, leaving more of your savings to potentially grow for the future (and you may also have access to affordable health care)
  • If you’re married, and you and your spouse are both employed and nearing retirement age, think about staggering your retirements. If one spouse is earning significantly more than the other, then it usually makes sense for that spouse to continue to work in order to maximize current income and ease the financial transition into retirement.
  • If you’re going to be using the money from your IRA or retirement plan to fund your retirement, remember that in addition to income taxes, there may be penalties if you withdraw the funds prematurely. Or, there may be a limit on what you can withdraw without penalties.

Retirement is also a state of mind. Don’t underestimate the psychological issues involved in deciding when to retire. Many people welcome the opportunity to reinvent themselves. Others postpone retirement or return to some form of work so they can continue to feel connected and productive.

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The $849,000 Cost of Being a Woman

While men may save more, a study¹ shows that women face nearly $850,000 in additional expenses just for simply being born female.

So what’s behind the high cost of being a woman?

Think that’s all? Other factors such as death and divorce causes 90% of women to lose a second household income, making it harder for them to save.

What can we do?

  1. Negotiate for better wages
  2. Increase your savings goals
  3. Keep debt low. Use your credit card less often.
  4. Focus on career growth

infographic - the cost of being a woman

 

¹ https://www.saveup.com/blog/disadvantage-of-being-female-infographic/
² http://www.whitehouse.gov/equal-pay/myth

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Retirement Planning for Women

Retirement planning for women face special challenges. Because our careers are often interrupted to care for children or elderly parents, we may spend less time in the workforce and earn less money than men in the same age group. As a result, our retirement plan balances (e.g. Social Security benefits, and pension benefits) are often lower. In addition to earning less, we generally live longer than men, and they may face having to stretch limited retirement savings and benefits over many years.

To meet these financial challenges, you’ll need to make retirement planning a priority.

Retirement Planning for Women: Begin saving now

To help improve your chances of achieving a financially comfortable retirement, start with a realistic assessment of how much you’ll need to save. If the figure is substantial, don’t be discouraged–the most important thing is to begin saving now. Although it’s never too late to save for retirement, the sooner you start, the more time your investments have to potentially grow.

The chart below shows how just $2,000 invested annually at a 6% rate of return might grow over time:

If women save for retirement sooner
Note: This is a hypothetical example, and does not reflect the performance of any specific investment. Results assume reinvestment of all earnings and no tax.

Save as much as you can–you have many options

If your employer offers a retirement savings plan, such as a 401(k) or a 403(b), join it as soon as possible and contribute as much as you can. It’s easy to save because your contributions are deducted directly from your pay, and some employers will even match a portion of what you contribute. If your employer offers a pension plan, find out how many years you’ll need to work for the company before you’re vested in, or own, your pension benefits. Women struggling to balance work and family sometimes shortchange their retirement savings by leaving their jobs before they become vested in their pension benefits. Keep in mind, too, that because your pension benefits will be based on your earnings and on your years of service, the longer you stay with one employer, the higher your pension is likely to be.

statistic - how mothers and fathers spend their workweeks

Most employer-sponsored plans allow you to choose from several investment options (typically mutual funds). If you have many years to invest or you’re trying to make up for lost time, you may want to consider growth-oriented investments such as stocks and stock funds. Historically, stocks have outperformed bonds and short-term instruments over the long term, although past performance is no guarantee of future results. However, along with potentially higher returns, stocks carry more risk than less volatile investments. A good way to get detailed information about a mutual fund you’re considering is to read the fund’s prospectus, which can be obtained from the fund company. It includes information about the fund’s objectives, expenses, risks, and past returns. We can also help you evaluate your retirement plan options.

Save for retirement–no matter what

Even if you’re staying at home to raise your family, you can–and should–continue to save for retirement. If you’re married and file your income taxes jointly, and otherwise qualify, you may open and contribute to a traditional or Roth IRA as long as your spouse has enough earned income to cover the contributions. Both types of IRAs allow you to make contributions of up to $5,500 in 2014 (unchanged from 2013), or, if less, 100% of taxable compensation. If you’re age 50 or older, you’re allowed to contribute even more–up to $6,500 in 2014 (unchanged from 2013).

Plan for income in retirement

Retirement Planning for Women - life expectancy of womenDo you worry about outliving your retirement income? Unfortunately, that’s a realistic concern for us women. At age 65, we can expect to live, on average, an additional 20.3 years.¹ In addition, many women will live into their 90s. This means that we should generally plan for a long retirement that will last at least 20 to 30 years. We should also consider the possibility of spending some of those years alone. According to recent statistics, 36% of older women are widowed, 14% are divorced, and almost half of all women age 75 and older live alone.² For married women, the loss of a spouse can mean a significant decrease in retirement income from Social Security or pensions. So what can you do to help ensure you’ll have enough income to last throughout retirement? Here are some tips:

    • Estimate how much income you’ll need. Use your current expenses as a starting point, but note that your expenses may change by the time you retire.
  • Find out how much you can expect to receive from Social Security, pension plans, and other sources. What benefits will you receive should you become widowed or divorced?
  • Set a retirement savings goal that you can work toward, and keep track of your progress.
  • Save regularly, save as much as you can, and then look for ways to save more–dedicate a portion of every raise, bonus, cash gift, or tax refund to your retirement savings.

What’s your excuse for not planning for retirement?

I attribute my success to this- I never gave or took any excuseI’m too busy to plan

Perhaps you’re so wrapped up in balancing your responsibilities that you haven’t given retirement planning much thought. That’s understandable, but if you don’t put retirement planning at the top of your to-do list, you risk shortchanging yourself later on. Staying focused on your goal of saving for a comfortable retirement is difficult, but if you put yourself first it could pay off in the end.

My husband takes care of our finances

Married or not, it’s critical for women to take an active role in planning for retirement. Otherwise, you may be forced to make important financial decisions quickly during a period of crisis. Unfortunately, decisions that are not well thought through often prove costly later. Preparing for retirement with your spouse could help ensure that you’re both provided for, and pave the way to a comfortable retirement.

I’ll save more once my children are through college

Many well-intentioned parents put their own retirement savings on hold while they save for their children’s college education. But if you do so, you’re potentially sacrificing your own financial well-being. Your children have many options when it comes to financing college–loans, grants, and scholarships, for example–but there’s no such thing as a retirement loan! Why not set a good example for your children by getting your own finances in order before contributing to their college fund?

I don’t know enough about investing

Commit to spending just a few minutes a day learning the basics of investing, to help you become knowledgeable. And remember, you don’t have to do it by yourself–we will be happy to work with you to set retirement goals and help you choose appropriate investments.

¹ The National Vital Statistics Report, Volume 61, Number 4, May 2013
² U.S. Department of Health and Human Services Administration on Aging, A Profile of Older Americans: 2013

Important Disclosure

 

 

Broadridge Investor Communication Solutions, Inc. and Parson Latimer & Judge Financial and Insurance Solutions LLC do not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.