This is a great blog post I asked a colleague of mine through NAPFA if I could post on his behalf. I see this a lot in my practice now. While I primarily do retirement planning for seniors, those a bit younger with parents living longer have an entirely different set of issues to contend with. Thanks Ray!
Here’s Ray’s thoughts:
Baby Boomer Retirement Planning
Sandwiched Between Generations by Raymond D. Mignone, CFP
At a time when middle-aged couples should be saving significant sums for their own retirement, they may find themselves caught in the middle of competing financial needs from two generations. Having started families later than past generations, their children may just now be entering college or could still be living at home, placing financial strains on the couple. At the same time, aging parents may require financial assistance. It is a problem that is likely to become more common as time goes on.
It is becoming increasingly likely that you will need to provide assistance to an aging parent. A recent survey found that 40% of the respondents are providing or anticipate providing financial support to their aging parents. The AARP has a lot of research in this area. Current generations have fewer siblings than prior generations, so any assistance is likely to be shared by only a couple of individuals. Some financial precautions you can take now, before your parents need assistance, include:
Investigate long-term-care insurance for your parents. If they can’t afford the insurance, you may want to purchase it for them. I am usually not a big fan of insurance products but long-term care is an insurance I think many folks should investigate. Have your parents prepare a complete listing of their assets, liabilities, and income sources, including the location of important documents. This can save a significant amount of time if you must take over their finances.
Make sure your parents have legal documents in place that will allow someone to take over their financial affairs if they become incapacitated. We keep copies of our clients wills and all important papers to act as a central location for all financial information, this service has proved invaluable to family members who have other things to worry about upon the death of a loved one.
They may also want to delegate health care decisions to a third person. If you are supporting your parents financially, make sure you understand the tax laws. Providing more than half of their support may allow you to claim them as a dependent on your tax return. Additionally, you may be able to deduct medical expenses that you pay.
If you if your parents have financial assets consider having them establish a relationship with a certified financial planner, the financial planner can assist them with organizing their affairs over the years and be a valuable resource in times of family crisis. Learn more about creating Risk Controlled Portfolios for retirees and boomers here.
You want to work with someone who can be completely objective and does not sell insurance or commissioned products. To obtain true Fee-Only financial advice work with someone who is a member of the National Association of Personal Financial Advisors
College costs are a significant financial cost for many families. While most people would like to pay for all college costs for their children, with competing needs to save for retirement and to assist parents, this may not be feasible. You may need to shift some of the load to your children, requiring them to work part time during college or to take out and pay back loans. Negotiate with your child’s preferred college to see if you can increase the financial aid package. Consider starting your child at a community college, which is often cheaper than a four-year college
Once your child has graduated from college, don’t assume that your financial responsibilities are over. Many parents are finding that their adult children return home for a variety of reasons. Approximately one out of every nine individuals between the ages of 25 and 34 lives in their parent’s home. If faced with a returning child, realize that there are increased costs – additional food, phone bills, utilities, etc. It may also mean staying in a larger house than you would need if the child was not living with you. Consider charging rent and putting a deadline on how long he/she can stay.
Don’t forget yourself. When faced with the competing needs of children and aging parents, it is easy to neglect your own needs to save. Yet one of the best gifts you can give your children is to be free of debt and financially independent during your retirement. Handling these competing financial needs can be difficult, good planning can make things easier.
Raymond D. Mignone is a Fee-only Certified Financial Planner & Registered Investment Advisor specializing in retirement planning and portfolio management.
Thanks Ray!
Greg Phelps