By Amy A. Brandts, CLU, ChFC
You have probably just taken a great sigh of relief, as your children prepare to leave the nest and become independent adults. But don’t relax just yet. Before you know it, you may find yourself being a caregiver once again, because as your children mature, so do your parents! Their golden years may be tarnished by health problems and your family could be significantly impacted if your parents haven’t done the appropriate planning for this possibility. Do you know where your parents will live (and how they will pay for it) if they can no longer take care of themselves?
First, talk to your parents and encourage them to discuss their living preferences in the event that the frailty of aging impacts their mobility. If they are willing, ask them to share information about their financial situation. If they are uncomfortable discussing it with you, encourage them to meet with a financial planner. Also ask them if they have a current will, durable power of attorney and advanced medical directive, all essential legal documents for managing one’s health and finances. For this, they should consult an estate planning attorney.
Why should you worry? Perhaps your parents are among the few that have all their financial and legal affairs in order. But if not, a lack of planning can be costly, both in time and money. In northern Virginia, you can pay as much $19-20 per hour for a caregiver to come into your home to help with a parent. Assisted care facilities range from $2,000-$4,000 per month and nursing homes can cost as much as $6,000 per month. Can your parents afford these costs, or will you need to pitch in and help? How will this affect your family budget?
Age and illness will eventually affect us all and it is essential to plan for it. The best solution is to establish a “nursing home avoidance plan,” so that your parents have an adequate combination of available assets and long term care insurance, to cover the costs of getting the help they need in their own home without risking poverty. Based on our personal experience and the experience of our clients, we suggest taking the following steps:
- Choose or modify their home with an eye for accessibility. Make certain it has doorways and bathrooms that are wheelchair accessible and that they can live on one level. Make certain there is an extra bedroom where a caregiver can reside. Select a home close to their preferred doctors and hospitals.
- Make certain they have adequate health insurance after retirement. Supplement Medicare with additional coverage that will provide prescription health benefits, if possible, or join the new Medicare discount prescription plan.
- Find out if they have a will or living trust. Are the documents up to date and do they fully reflect their current wishes? If not, consult an estate planning attorney.
- Do they have a durable power of attorney? This appoints someone to manage their financial affairs in the event they are unavailable or incapable.
- Do they have an Advanced Medical Directive? This legal document specifies who will make their medical decisions in the event that they cannot. It can also express their wishes if they become terminally ill and/or unable to maintain any quality of life. Make certain that this document is updated to reflect the newly required language that is needed due to the recent HIPPA legislation (Health Insurance Portability and Accountability Act of 1996).
- Hire a financial planner to review their portfolio to determine if it is invested appropriately based on their age, comfort level with risk and need for current income.
- If they are between the ages of 50-75, have at least $75,000 of assets in addition to their home and are still healthy enough to qualify, consider buying long term care insurance, which will help pay the costs of long term care. Make certain that the premium is affordable and remember that premiums may increase in the future. It may make good sense to purchase a policy for them and share the cost with your siblings. This helps ensure that they can afford the care they need and also protect their (and your) assets from being depleted.
Your children are growing up. As you begin to reflect on the pleasures of the next stage of your life, don’t forget the Great Role Reversal. A little pre-planning can help your parents enjoy their older years, age gracefully in the comfort of their own home, and help protect their assets. It will also give you peace of mind, knowing that you can put your worries aside and focus on enjoying their golden years and yours.
Amy Brandts is a financial planner and founder of Symphony Financial, an independent fee-based financial planning firm in Herndon, VA. She specializes in working with the “Sandwich Generation,” those who are sandwiched between the needs of their children and their elderly parents. To reach Amy, call 703-481-9876 or email her at [email protected].