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Your Investing Life: Helping aging parents

October 31, 2013

When you think of your parents, you may picture how they were when you were a kid. They took care of you and also taught you how to take care of yourself. And if you were lucky, those lessons included helping you understand the basics of finances.

Perhaps your picture is changing as your parents begin to face some of the challenges that come with aging: lifestyle choices, health questions, saving and spending considerations, and estate planning possibilities, just to name a few.

Here are some suggestions to help you manage the effects these challenges can have on your—and your parents'—investing and financial life.

Start the conversation about money

Silence isn't necessarily golden when it comes to money and family. You might feel uncomfortable getting the conversation going, especially if your family is more reserved, but it can pay off in peace of mind.

Often, just learning the answers to some basic financial questions can be a relief: Do your parents have enough income to meet their living expenses in retirement? Do they have an estate plan in place, including an executor? Even if the answer is no, you (and your parents) have a starting point to make decisions that are appropriate for their situation.

One way to get the conversation going is to share some financial or investing information that you're comfortable talking about with your mom or dad. Maybe it's mentioning the 529 plan account you opened up for your child or that you've been thinking about rebalancing your IRA portfolio.

Karin RisiIf your parents are still married, it can help to start the conversation with both of them in the room. You might be surprised to discover that they haven't talked about their finances as a couple.

"It's not uncommon for one partner to take the lead in financial decision-making. But allowing one partner to remain in the dark on financial matters—even if it's that person's long-standing custom and preference—can leave you both in a precarious situation," said Vanguard Advices Services leader Karin Risi.

Catherine GordonCatherine Gordon, a leader in Vanguard Investment Strategy Group, suggested you think about this conversation as an "emotional insurance policy." She said, "Much the same way a traditional insurance policy can protect against unforeseen circumstances, an emotional insurance policy can protect against unfortunate financial surprises that are often highly charged emotionally".

Another positive effect of keeping the financial conversation flowing? Your parents may be more likely to let you know if someone else has been talking to them about their investments and assets, which can help you protect them if they're the targets of fraud.

Unfortunately, seniors are more likely to be targets of fraud, according to a study commissioned by the FINRA Investor Education Foundation. The study reported 93% of respondents age 65 and older received some type of fraud solicitation. Of those, almost half took the bait, and 16% actually lost money. In addition, their likelihood of losing money if solicited was 34% higher than for those in their 40s. "This vulnerability to fraud is just as big a risk as having sufficient income to meet expenses through retirement," Ms. Gordon said.

Be wise about helping

During your conversations with your parents, you may learn some things about their financial and investing life that you feel need to be addressed. But it's important that you proceed with caution.

  • Respect your parents' financial boundaries. Unless your parents are medically impaired, they're adults capable of managing their own financial lives. So you may have to back off from urging them to make an investing move, even if you think it's the right thing to do. This can sometimes be tough to do, especially when you're used to acting for yourself and perhaps for your children.
  • Balance your parents' financial needs with your own. If your parents are under financial constraints, you may want to tap into your retirement savings to help them. That's an admirable instinct, but one with potential long-term financial consequences for you and your own children. Consider any such move carefully before you act.

Tidy up your own financial house

  • While you're worrying about whether your parents have their finances in order, consider taking some action yourself. Here are a few things you can do regularly to lay a solid foundation for your investment plan:
  • Designate beneficiaries for all your investment accounts, not just those for retirement.
  • Check the mix of stocks, bonds, and cash in your portfolio (your asset allocation) once a year to make sure it's still in line with your risk tolerance and time horizon.
  • Put an estate plan in place and review it whenever a major life event happens, such as getting married, having children, or getting divorced. Even if you don't think your assets are sizable, having an estate plan in place can simplify things for your loved ones and help minimize any legal complications or probate delays in distributing your assets.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • We recommend that you consult a tax or financial advisor about your individual situation.
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