How to talk money with Mom and Dad
The market's plunge has damaged your parents' nest egg. Will that affect your own plans? You'd better find out.
(Money Magazine) -- This spring Michael Rowe and his six siblings flew their parents to Orlando to celebrate their 85th birthdays. After the guests of honor excused themselves for a nap one afternoon, conversation around the swimming pool quickly turned serious. Did Mom and Dad have enough money to see them through their retirement? No one quite knew the answer.
Perhaps you've been wondering the same thing about your own parents. Well, there's good reason for concern. Just as your retirement savings may have declined in recent months, so too might theirs have -- only they're probably already tapping those funds.
The Rowe family decided it was time to have "the talk." And you should follow their lead. "You don't want to wait until there's a crisis to ask your parents about their finances," says Julie Davis of Parent-giving.com, a caregiver resource site. Better to find out now if your own retirement plans might be altered by the need to pitch in for theirs.
Your parents may feel money is a private matter. Or they may want to seem as if they have it all together in front of their kids. Either way, approach the conversation delicately. (And of course, check in with your siblings first, as they may want to be involved.)
Start with a story about how you are doing financially -- chances are they're worried about you too -- then open the door with these three basic topics.
This is the toughest question to ask. To broach it, note that you've recently run the numbers on your own retirement to see how you're doing post-crash. Then add that you just want to make sure that they'll be okay financially, given all that's happened.
If they have a financial adviser, see whether you can meet with that person together. Otherwise, offer to take a second look at their own calculations. (You can get a sense of how long their money would last using the T. Rowe Price retirement income calculator)
If funds may run out, help them consider their options. Among them: an immediate annuity, which turns a portion of savings to a guaranteed stream of income, or a reverse mortgage, which would let them draw on home equity.
The next step is to make sure your parents' portfolio isn't exposed to too much risk. At their age, it's harder to ride out the stock market's downsides. They need to be focused on capital preservation. On the other hand, they shouldn't be all in cash either, since they need to keep pace with inflation.
Mention your own allocation, and ask about theirs. As a rule of thumb, subtract their age from 110; that's roughly the percentage of their portfolio that should be in stocks.
Long-term care is a wildcard most retirement calculators don't take into account. Yet the costs can be devastating -- nursing-home care, for example, averages $69,000 to $78,000 a year, per MetLife -- and aren't covered by Medicare. You want to know if your parents have a plan to pay for such expenses.
Lead in by asking where they see themselves living out their years. If they got sick, would they prefer to age in place with a home health aide or move to a nursing facility? Then see whether they have long-term-care insurance, which helps foot the bill in such circumstances.
Getting LTC insurance now may be cost-prohibitive (a 70-year-old couple might pay $6,000 a year, and prices go up with age), so it might not make sense unless they have an estate worth preserving and can afford the premiums.
Help them identify other ways they could pay for care if it's needed. Typically seniors are advised to tap cash first, investments second, and real estate last, says Parsippany, N.J., elder-care attorney Deirdre Wheatley-Liss. Once the sick parent exhausts the assets in his or her name, Medicaid will step in to pay for 100% of care.
With luck, these questions will pave the way for future talks -- as they have done for the Rowes. After returning home to Indiana, Michael and his youngest sister took their parents to lunch and voiced their concerns. Their parents were so glad to talk that they suggested meeting with their financial planner that very afternoon. "It relieved some of our worries," Rowe says. "And I think Mom and Dad drove away happy."
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