Pay It Forward: Start Talking to Your Kids
Elearly, you bought this book because you recognize the importance of talking to your parents about their financial situation and their wishes for how their finances should be handled when they’re no longer able to handle them on their own. But have you started talking to your kids about your own finances? Are money conversations happening in your house? Are you taking steps to secure your finances so your kids don’t have to jeopardize theirs to help you someday?
A survey by Ameriprise found that even though a majority of baby boomers are talking to their parents about financial matters, they’re not always having those same conversations with their children.1 Often, the excuse is that they haven’t gotten around to it or haven’t thought about it, according to the survey. You can probably relate to that. We all can, actually, because we get so busy keeping up with what we have to do to get through the day that we forget to take time to plan for the future. Before you know it, though, you’ll be in a situation where you need your kids’ help, but they won’t be able to step in because you haven’t given them any insight into your finances. That’s why you shouldn’t wait to start having financial conversations with your kids.
I’m not suggesting that you share every detail about your financial situation, especially if your children still are young. But there are things you should be discussing with them to avoid financial surprises down the road. More importantly, there are things you should be doing to safeguard your finances so you’ll never become a burden on your children.
MAKE SURE YOU HAVE ESTATE PLANNINC DOCUMENTS
I can’t tell you
how many times I’ve heard from my friends that they’ve been meaning to get
around to writing a will. (Yes, the subject does come up when you’re a personal
finance writer and people frequently pick your brain
about money matters.) Most are in their late s0s or 40s and still have kids at home, which is why I tend to tell them they can’t put off writing a will another day. If you die without a will, a judge decides who gets what – and that includes your kids.
A will lets you name a guardian for your minor children. It also lets you name someone to manage any assets you leave behind for your children. I know from experience that many parents put off writing a will because they don’t know whom to name as guardian. It can be a tough choice to make.
But wouldn’t you rather make that choice than let a judge who never met you and doesn’t know your values make that decision?
Even if your kids are grown, you still need a will or trust to let your wishes be known and to prevent family fights over who gets what. No matter how well you think your kids might get along, every estate planning attorney I know says it’s surprising what people will argue about when things are being sorted out after someone dies. “I have a family fighting tooth and nail over reimbursement for one child who mowed a yard for year,” said attorney Josh Berkley.
Take time today to schedule a meeting with an attorney to draft a will or living trust so you can have a say in who gets what, even if you don’t have a lot. While you’re there, have power of attorney and advance health care directive documents drafted, too. You don’t necessarily have to give your children financial and health care powers of attorney for you. Just make sure you designate someone you trust. Be sure, though, to let your children know that you’ve had these documents drafted and where they are stored. It could cost you a few hundred dollars to more than $1,000 to have estate planning documents drafted, depending on how complicated your situation is. But it will definitely be money well spent because these documents will spare your children the financial and emotional turmoil they’ll face if you die without a will, slip into a coma without a living will or develop dementia without designating a power or attorney first.
Also make sure
you have designated beneficiaries on any life insurance policies and retirement
accounts you have. By naming beneficiaries, the money will go directly to them
when you die rather than through the probate process that is used to settle
MAKE SAVINC FOR RETIREMENT A PRIORITY
Many baby boomers and Gen Xers are putting their own financial security at risk because they’re being too generous with their children. A study by Merrill Lynch and Age Wave found that parents are providing $500 billion in support every year to their 18- to s4-year-old adult children.2 They’re paying for everything from student loans to food and groceries to cell phone bills and rent. In fact, nearly three-quarters of parents say they have put their children’s interests ahead of their own need to save for retirement, according to the study.
As parents, we need to support our children. But there comes a point when we have to cut them off for their own financial well-being and for ours. If you’ve been supporting your kids instead of saving for your retirement, you could be dependent on them for financial support as you age. You probably don’t want that. And your kids might not be prepared to help out if they don’t have their own financial act together after years of relying on the Bank of Mom and Dad.
So it might be time for you to have a conversation with your children if you’ve been putting your own financial security at risk to help them. They might not even realize that you’re making sacrifices to help them. But if you make it clear that you need to focus more on saving for retirement so you don’t have to move into their basement someday, they’ll probably get the clue pretty quickly that they need to stop relying on you for handouts.
You might never need to even have this conversation if your kids are young and you start prioritizing saving for retirement now. Financial planners typically recommend saving at least 10 percent to 15 percent of your income annually to have enough for a comfortable retirement. But that assumes that you start saving that much in your 20s and don’t retire until your 60s. Use a retirement calculator to get a better idea of how much you need to save based on your current age and how much income you’ll likely need in retirement. Your workplace retirement plan might offer a calculator you can use, or there are plenty of them online. Investment firms such as Fidelity and Vanguard have free retirement calculators on their websites.
NewRetirement.com has a variety of
retirement calculators. And
OnTrajectory.com offers a more in-depth analysis of your retirement needs for a fee.
If you’re deciding whether to save for your kids’ college or your retirement, choose the latter. There are no loans for retirement, but there are for college. You might not want your kids to be saddled with student loan debt when they graduate. However, keep in mind that they’ll have a lot more time at that point to pay off what they owe than you will have to save for retirement.
Take advantage of your workplace retirement plan if your employer offers one. €ontributing to a 401(k), 40s(b) or 457 is the easiest way to save for retirement because contributions can be deducted automatically from your paycheck, and the money comes out before taxes (which lowers your taxable income). Plus, plenty of employers match employee contributions to workplace retirement accounts. The most common match is a dollar-for- dollar match, with a majority of companies requiring employees to contribute at least 6 percent of their income to a 401(k) to get the full matching contribution.s So if your employer offers matching contributions and you’re not contributing enough to get the full match, you’re giving up free money for retirement.
If your employer doesn’t offer a workplace retirement plan, you can open an individual retirement account – either an IRA or Roth IRA – at a low-fee investment firm such as €harles Schwab, Fidelity, or Vanguard. If you’re self-employed, you could save for retirement in a solo 401(k), SEP IRA, or SIMPLE IRA – as well as a traditional IRA or Roth IRA.
PREPARE FOR LONC-TERM CARE NEEDS
The biggest mistake you can make when it comes to long-term care is not planning for it. There’s a good chance you or your spouse (or partner) will need long-term care because a physical or mental health issue will leave you unable to care for yourself. About 70 percent of adults 65 and older will need long-term care at some point, and more than half will need a high level of care for more than 90 days, according to the Bipartisan Policy €enter.4
I know it’s a
downer thinking that someday someone might have to help you do things such as
driving to the grocery store, taking your medicine on
time, making sure your bills get paid, or even going to the bathroom. But ignoring the possibility that you might need help in the future won’t prevent it from becoming a reality. It simply means that you and your family won’t be prepared, which could wipe out both you and your kids financially.
That’s because long-term care is expensive.
The cost of professional care can range from about $4,000 a month for a home health aide or assisted living to more than $8,000 a month for a private room in a skilled nursing facility, according to figures from the 2018 Genworth €ost of €are Survey.5 Of course, you could pay for care out of your own pocket – if you have a lot of money, that is. Or you could limit your out-of-pocket costs by getting a long-term care insurance policy.
Typically, the younger you are when you sign up, the lower your premium (the cost of the policy) will be. The cost also depends on the amount of the benefit you want, your health when you apply, and the insurer you choose, because rates vary greatly from company to company. For example, the American Association for Long-Term €are found that the annual premium could range from $8s5 to $2,196 for a policy with a $164,000 benefit for a 55-year-old man.6 That’s why it’s important to work with an insurance broker who represents several companies and can help compare prices for you. You can get free quotes from American Association for Long-Term
€are members at www.aaltci.org or by calling 818-597-s227.
You don’t have to buy a policy with a benefit to cover the entire cost of care, which could make premiums unaffordable. Instead, think about the sources of income you will have that could help pay for care – such as Social Security benefits or a pension – then buy enough insurance to cover the gap. For example, if you get a monthly Social Security check of $2,000 and the cost of assisted living in your area is $4,000 a month, you only need to be able to insure about $2,000 worth of costs each month. To figure out how much coverage you need, you can use Genworth’s €ost of €are calculator at https://www.genworth.com/aging-and-you/finances/cost-of- care.html to find out the median costs of various types of care in your area. Genworth also has a calculator to estimate your long-term-care insurance costs.
advantage of good health discounts, you can keep down the cost of long-term
care insurance by applying when you’re younger (in your late 40s or early 50s)
when your health is good. Just like with auto and home-
owners insurance, you can reduce your premium by opting for a higher deductible, or an elimination period. The longer the elimination period – the number of days you pay out of pocket before coverage kicks in – the lower your premium.7 You also could save by opting for a defined benefit period that provides coverage for a limited number of years rather than an unlimited benefit period. A policy with a five-year benefit period can cost up to 27 percent less than an unlimited benefit policy, according to the American Association for Long-Term €are. €ouples can cut costs by opting for shared benefits, which is basically a pool of money either or both can draw from for care. However, don’t try to save money by getting a policy without inflation protection. This will add to the cost but it will ensure that the value of your benefits keep pace with the rising cost of care.
Another option to consider is a hybrid life insurance policy that provides a long-term care benefit.8 These are whole or universal life insurance policies, which means they offer permanent coverage rather than term coverage for a certain number of years. But they include what is called a rider that lets you draw from your death benefits (the amount that would be paid to beneficiaries) to pay for long-term care. If the long-term care benefit is never used, the life insurance policy will pay out on your death – which is appealing if you don’t like the idea of paying for a long-term care policy that you might never need. However, you typically have to pay one large
up-front premium of $50,000 or more,9 although some companies allow you to pay premiums over a certain number of years. And the benefit payouts for long-term care tend to be more limited than the benefits from a traditional long-term care insurance policy.10
If you have cash on hand, you also could invest in a long-term care annuity. You make a lump-sum payment in return for a guaranteed stream of income over a specified period of time. The money you invest goes into two funds – one for long-term care and one for general use. The benefits are that you can use the annuity as a source of income even if you don’t need the long-term care benefit. However, the annuity payout might not be enough to pay for long-term care if you need it.11
government programs that help cover the cost of long-term care, as I wrote in €hapter 12. Medicare does not pay for most
long-term care services – typically just short-term care in a nursing facility
hospitalization.12 Medicaid does cover long-term care at home and in skilled nursing facilities – but typically not in assisted living facilities. To be eligible, though, your income and assets can’t exceed certain levels, which are determined by your state.1s The Department of Veterans Affairs also pays for long-term care services for low-income veterans.14
Of course, you could do what most Americans do when it comes to long- term care – rely on family members for help. If you expect to get care from your children, be aware that this could put a huge financial strain on them. Because caregiving can be a full-time job, your kids might have to give up their paying jobs to help you. If you see your children as your only option for care, you need to talk with them sooner rather than later. This will give them time to prepare their own finances. And it will give you time to come up with Plan B if they tell you that they won’t be able to care for you.
CREATE YOUR OWN FINANCIAL INVENTORY
You should have your own list of all of the financial information I suggested in €hapter 9 that you gather from your parents. You could use the “In €ase of Emergency” organizer available at €ameronHuddleston.com.
Or you could create your own file.
You don’t have to hand over this list to your children now. Just keep it updated and make sure your children – or the person you named in your will as your children’s guardian – know where to find it. It will save them the headache of trying to dig up this information on their own if something happens to you and will make it easier for them to help you if you need it.
SCHEDULE A TIME TO TALK … AND KEEP THE CONVERSATION COINC
If you keep
telling yourself you’ll get around to having “the talk” with your kids, make sure
it actually happens by scheduling a time to sit down and chat. If you don’t
often talk about money matters in your family, your children might find it a
little odd that you want to meet with them to discuss your finances. But you
can quickly quash any worries they might have that
something’s wrong by assuring them that you simply want everyone get on the same page so there are no surprises as you head into retirement or as you age. Here are some things to consider discussing:
Talk about your plans for retirement. If you have a financial plan, don’t just tell your kids that everything is covered. €lue them in to the type of lifestyle you plan to have in retirement – whether you’ll continue to live in your home, whether you’ll relocate, whether you’ll be traveling most of the time, or whether you’ll be volunteering most days. Why? Because if your kids have children of their own or are planning to start a family, they might have it in their heads that you’ll be helping out with childcare. If that’s not at all part of your plan, your children need to know. They also might need time to adjust to the idea that you’re selling the family home. Talking about your plans might help your children with their own financial planning or simply assure them that you’ll be okay in retirement.
If you’re not sure yet how you’ll support yourself in retirement, your children need to know whether you might need their help in any way. If you delay this conversation out of embarrassment, you’ll only make it more difficult for your children. That’s because they will have less time to prepare their own finances and make adjustments to help you. You also need to know what level of support they can provide. They might not have the means – or, as harsh as this might sound, the desire – to chip in, which means you need a Plan B.
Talk about where you want to live as you age. As I wrote in €hapter 1s, most people don’t want to move as they age. If it’s important for you to stay in your home even if your health declines, let your children know this.
However, you need to take steps to make this possible. That might mean saving enough to cover the cost of retrofitting your home to make it more senior friendly. It might mean getting a long-term care insurance policy to cover the cost of in-home care. It does not mean counting on your kids to put their careers and families on hold to help you age in place.
If you’re not
determined to stay in your home, let your children know this. It will lift a huge burden from them if
they know it’s okay to move you to a facility where you can get the care you
need. In fact, you might want to scout out senior living facilities where you’d
be willing receive care and give your kids a list of the ones that get your
stamp of approval.
Talk about your final wishes. No matter how much you – and your kids – don’t want to have to think about your death, it will happen. You can make it easier for those you leave behind by letting them know your final wishes so there’s no question about what you want. I’ve already told my children (who still are relatively young) that I want to be cremated and that they can choose where to spread my ashes. My husband wants to be cremated and have his ashes planted with a tree. I’ve found that talking openly about it removes the stigma about death and the sense of dread that it will happen someday. I’m so grateful my mom had these conversations with me before she developed Alzheimer’s. I even know what type of service she wants.
Let your children know whether you want to be buried, cremated, or even donated to science. Tell them what type of service you want, whether there are particular readings or songs you prefer. Then put it all in writing so there is no question about what you want when the time comes.
Most importantly, these conversations should be ongoing. Keeping your children updated on your situation will help all of you develop plans to address issues as you age. And it will give your children peace of mind knowing that if they ever need to help you, they will be able to because you’ve shared with them the information they need.