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How to Help Your Parents Prepare Their Finances

Picture this: at age 60, you have a net worth of $3 million and you’re feeling confident about your upcoming retirement. However, after 10 years of market growth, you somehow end up with a $2 million net worth when you turn age 70.

Most people can’t (or don’t want to) imagine such a situation, but it can happen. You could be doing everything right financially for yourself, but if your parents aren’t on the right track, the financial responsibility of their mishaps may fall on your shoulders.

As you approach retirement, it’s important to parent-proof your financial strategies so that your assets don’t drain unexpectedly. Here are three questions you should consider. (For related reading, see: How You Can Prepare for a Financial Setback.)

Do Your Parents Have a Retirement Income Plan in Place?

If the parents were to retire before determining how much they’ll need to last through their golden years, they run the risk of passing a financial burden onto their children. It wouldn’t be uncommon for adult children to help subsidize their parents’ costs in retirement, whether that’s sending money every month or moving the parents into their home. While you may not mind assisting your parents financially, it could drain your retirement savings, prevent you from saving the amount you need to retire and prolong the number of years that you need to work.

If your parents haven’t yet retired, encourage them to meet with a financial advisor to review their current savings and determine whether or not they’re on track. If your parents have already retired, that doesn’t mean it’s too late. A financial advisor can help them create a budget and review opportunities for increasing their income.

Do They Have an Up-to-Date Estate Plan?

Most people understand that having an estate plan is crucial. However, having a poorly created or an outdated plan can be just as harmful as having no plan at all. It can be helpful to sit down with your parents and review these items.

If they don’t have an estate plan, your inheritance could be redirected to the IRS, and you may face hefty attorney fees to settle their finances. Talk with your parents about how they intend to divide up their assets amongst their loved ones.  Meet with an estate attorney to put a plan in place to make things easier on your family in the future. 

Dividing an inheritance evenly may sound easy, but what if you wanted to sell your parents’ house but your sibling doesn’t want to part ways with it for sentimental reasons? If you are receiving a large inheritance and you can’t come to an agreement with your siblings, what happens next? It’s possible you could see yourself in court fighting against them. It’s important to have these open conversations early on to avoid conflict in the future. Your parents should have an estate plan that is up-to-date and that clearly outlines their legacy intentions. (For related reading, see: Estate Planning: 16 Things to Do Before You Die.)

Do They Have Long-Term Care Insurance?

Insurance may seem like a bet against yourself, but if your parents are approaching age 65, it can be a bigger gamble to go without long-term care insurance. According to the U.S. Department of Health and Human Services, 70% of Americans age 65 or older can expect to need some form of long-term care in their lifetime.

Long-term care can be very expensive; it can quickly deplete one’s savings. On average, it costs $229 per day, or $6,965 per month, for a private room in a nursing home. For women who require long-term care for an average of 3.7 years, that adds up to $306,460. For men, who require long-term care for an average of 2.2 years, that adds up to $181,090. (For related reading, see: Long-Term Care Insurance: Who Needs It?)

If your parents don’t have long-term care insurance and also feel they can’t afford it, you and your siblings may want to consider funding it so that it doesn’t adversely affect you later and possibly deplete your inheritance.

Taking Action

Many times, family members have different ideas about money, from how much to save versus spend to the definition of wealth. A financial advisor is like a money counselor, helping generations of families get on the same page financially by communicating their financial goals and legacy wishes.  Whether you attempt to have these conversations with your family members on your own or with the help of an advisor, the important first step is to make sure these conversations take place.

(For more from this author, see: 3 Ways People Inadvertently Disinherit Loved Ones.)


The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an 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 an individual’s goals, time horizon, and tolerance for risk.