6 Steps for Building a Financial Plan for Aging Parents

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In this week’s TIME Magazine cover story, columnist Joe Klein tells his story of caring for, and eventually losing, his elderly parents. The article is powerful in part because it deals with an issue that — if we’re lucky — most of us will face.

Despite the fact that the experience is almost universally shared, too few of us are prepared to deal with the financial challenges that tend to arise as our parents reach old age. But with the recession having decimated many Americans’ savings, and forcing many workers to take on unexpected expenses – like helping unemployed or underemployed adult children – it is now more important than ever to prepare for this stage of life.

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Dealing with aging parents can clearly be trying — emotionally and financially — but you can make the process much easier if you begin to prepare before your parents face serious health problems. To get you started, here’s a look at six basic steps you’ll need to take.

1. Have a financial plan of your own. “The first thing an adult child needs to do is protect his own financial security,” says Joy Loverde, author of The Complete Eldercare PlannerShe says that many people can run into serious financial difficulties while caring for their parents. Of course children want to be there for mom and dad, but it’s important to know your own financial capacity to help. If you have your own plan in place  – one that takes into account the likelihood that you’ll live longer than your parents — you’ll better know those boundaries.

Unfortunately, most seniors today haven’t purchased long-term care insurance, and by the time they know they’ll need it, such policies are prohibitively expensive. But if you have aging parents, buying long-term care insurance for yourself may provide you with the certainty needed to be able to spend income and assets on your parents’ care.

2. Open up the conversation, gently. Getting your parents to be forthright with you about their financial situation can be very difficult. For decades, they have been the ones caring for you, and the ones dispensing advice. Reversing those roles can be trying for both you and your parents. That’s why framing the conversation effectively is important. Loverde suggests broaching the subject in such a way that comes across as asking for help rather than offering it. “We’re aging right alongside our parents, so keeping the onus on yourself makes sense,” she says. “You could ask, ‘Hey, Dad, I’ve been thinking about my long-term financial stability and it looks like you’re doing well. How did you plan for this?’” This way you can glean if you’re parents are struggling, and if they’re not, it can be a good way to learn strategies for yourself.

3. Get help. Dealing with aging parents can be a source of acrimony between siblings. If you’re the adult child taking the lead, it’s important to involve your siblings early in the process – both to avoid resentment, and to avoid having the burden placed entirely on your shoulders. It is also a good idea to bring professionals into the conversation – a doctor, lawyer and financial adviser that your parents already trust. This will add outside authority to your discussions and help mitigate any qualms your parents have with being told what to do by their children.

4. Make it legal. In case your parent’s health deteriorates quickly, you or a trusted ally will need to be given the legal authority to make financial and health decisions for them. Documents like a durable power of attorney will allow a proxy to make financial decisions for your parents in case they become incapacitated. A living trust will allow a proxy to manage your parent’s estate under similar circumstances, and a will is necessary to dictate how your parents’ estate will be disposed of after they pass.

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5. Simplify their financial life. Many seniors are resistant to online banking, but showing your folks the ropes will allow them to set up automatic bill pay, which will help them stay up on their financial responsibilities. It will also allow you to monitor their finances and make sure everything’s okay. Many Americans have their financial assets spread among a range of financial institutions; you’ll want to consolidate those assets to some extent.

6. Take over gradually. As you begin to take a larger role in your parents’ medical care and finances, it’s important to make the transition slowly if possible. Give them autonomy where they can handle it, as this will reduce tension between you and your parents. For health reasons, it’s also important for your parents to maintain a sense of autonomy and self-reliance.

As you move forward in the process of taking responsibility from your parents, the most important thing you can do for yourself is learn from your parents’ experiences. As Loverde notes, “Today people are living a third longer than they thought they would,” and that trend is likely to continue. Doing things like buying long-term care insurance and setting up your own legal directives while you’re still young will make the process that much smoother when you and your children face it.

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