Several years ago, when our oldest children were approaching their teen years, my wife let me know it was time for me to have "the talk" with our oldest son. Gulp! I had always known the day would come, and I always imagined I would face it with courage and good humor. But now that it was upon me, my courage and good humor evaporated. Let's face it, some things are hard to talk about.
Don't look now, but it is probably time to have another one of those tough conversations. This time, instead of talking with kids about sex, you need to talk with your parents about aging and their financial readiness to handle the associated challenges. Aging, as a wise man once said, is not for the faint of heart.
Here are some things you probably want to talk about.
In my experience, seniors tend to feel much more anxious about their finances than younger generations. In some cases, seniors feel trapped between rising costs and their declining ability to work. In other cases, significant life changes, such as the death or illness of a spouse, leave them facing questions and challenges they never had to deal with before. It can feel like a perfect storm and leave them feeling lost, overwhelmed, even embarrassed. By gently asking about their financial situation, you can help them deal constructively with their anxieties.
To get a good handle on their finances, you should first learn about their monthly cash flows. How much comes in and what is the source? If both parents are living, what would happen to their income if one were to die? On the other side of the ledger, how much goes out every month? Where do they spend their money? How much is spent on basic needs? How much on discretionary items or activities?
Most seniors have more money flowing out than flowing in, so after exploring their cashflow dynamics, you need to find out about their assets including real estate, savings, retirement accounts, and other investments. I find it helpful to categorize assets by liquidity, meaning which are most accessible in time of emergency.
You also need to look at the liabilities. Do your parents still owe money on their home? Do they have outstanding credit card balances or other consumer loans? The presence of liabilities isn't necessarily a problem, but it does reduce their financial flexibility in the event of a crisis.
Once you have this information, you can run some simple calculations to see how long their resources will likely last. Actuaries tell us that a person who is in reasonably good health at age 65 has a 25 percent chance of living to at least 95. If your parents are in pretty good health and your projections show your parents spending down their assets before their 95th birthday, you may want to think about some contingency plans.
The chance that an aging parent will survive a medical trauma (stroke, heart attack, accident, etc.) only to end up on life support has risen dramatically over the past several years. Even in the best of circumstances, this situation is emotionally difficult for everyone involved, but if the patient is incapacitated, the ethical and emotional difficulties multiply exponentially. To help ease these potential problems, everybody should have a set of three legal documents: a living will, a healthcare proxy, and a durable power of attorney.
A living will is a legal document which allows a person to specify ahead of time what kinds of medical care would be desired in the event the person is incapacitated. The instructions in a living will can be general or specific and can contemplate everything from whether or not CPR should be administered to whether or not blood transfusions, antibiotics or intravenous feeding is acceptable. You should be aware that some hospitals and healthcare providers will not always follow the stipulations in a living will.
A healthcare proxy stipulates that a particular person has authority to make healthcare decisions in the event the patient is incapable of making his or her wishes known. If caregivers are unwilling to follow the directives in a living will, a healthcare proxy can help persuade them to follow the incapacitated patient's wishes. Of course, naming someone as a healthcare proxy can place a difficult burden on their shoulders, so this should be done with great care.
Durable Power of Attorney
The durable power of attorney gives another person the right to do business transactions on behalf of the person who is incapacitated. These transactions can range from signing bank agreements and signing checks to dealing with social security. Please remember, the durable power of attorney does not give you the ability to make healthcare-related decisions.
Making the conversation easier
If you are starting to feel a little nervous about discussing these sensitive topics with your loved one, don't despair. There are some simple things you can do to help make the conversation easier and to approach it with greater confidence.
1. Check your motives. Let's be honest--family relationships can be complicated, so make sure you are starting this conversation for the right reasons. Proper reasons include a genuine concern for your parents' well-being and a desire to understand how you might need to help them in the future. If you don't feel that your motives are right, put the conversation off to a later time when you are in a better frame of mind.
2. Recognize that this may also be a very difficult conversation for your parents, too. Many of our parents grew up in homes where parents simply didn't talk about money with their children and they may still feel strongly that way. If they are concerned about their finances, they may feel some degree of embarrassment about their situation. Your sensitivity and love will be necessary to help them overcome their reluctance to share.
3. Slow and steady wins the race. If your parents don't respond immediately, don't worry. Even when parents are ready and willing to open up, these conversations take more than one session, so be patient. Help them see the benefits of bringing you into their confidence.
4. Get a trusted advisor involved. Sometimes it is easier to talk about these things when a trusted third-party is asking the questions. This third-party maybe a personal friend (often a peer who has been through this before), a pastor or a financial advisor or CPA. The key element is that they help initiate the conversation in a caring and senstive manner.