2/26/2013 2:30 PM ET|
6 issues aging parents should raise
Here are smart financial choices and end-of-life planning steps you can take to make things easier for your kids as you grow older.
There is no shortage of reports and studies about things adult children can do to help their aging parents. As an aging parent, let me be among those applauding the prospect that my progeny may someday help me out should I need it and they can afford it.
But with apologies to what appears to be prevailing sentiment, the more likely scenario has these roles reversed. How will aging parents be taking care of their kids and grandchildren? For the most part, older Americans are the ones with the assets. Even in the best of times, younger people are struggling with careers, family needs and any number of financial pressures. And these have not been, to say the least, the best of times.
One of the bedrock pieces of generational financial advice is that a parent in or nearing retirement should not liquidate retirement assets to provide money to help a child. The parent has very little, if any, time to make up for the loss of that asset. The child likely has several decades. It's good advice. I ignore it regularly. Why? Because my kids need help and, my wife and I agree, what better use could there be for our money than helping our children?
Still, there could be a much richer conversation we could have with our adult children about money. So far, we're willing to have this discussion, but our kids aren't. They're preoccupied with the aforementioned stresses of daily living. They're not thinking about the long run. They don't like to talk about a topic that includes dealing with the reality that Mom and Dad may be departing Planet Earth in the not-too-distant future. What a bummer.
Today, however, we're going to have that conversation. Or at least my half of it. Whether they like it or not, here are six things my 30-something kids should be thinking about, and -- hint, hint -- discussing with their mother. (What, do you think I really want to have such awkward talks?)
Multigenerational living. Surveys show that nearly a quarter of young adults are living with their parents, mostly on their parents' dime. This is not anybody's idea of the American dream, but it's a reality today and for at least the next several years. Talk about the economics, logistics and personal sensitivities of sharing a roof. Remember that it's not forever. Have an exit plan that includes setting aside personal savings and a timetable for being able to afford independent living.
Roth IRAs. A Roth IRA is funded with post-tax dollars. Its investment earnings accumulate tax-free. For accounts open at least five years, there is never any federal income tax on withdrawals. My kids should hope I put aside as much as I can in a Roth. If I do not need to draw down these funds during my later years, they should also want me to will these accounts to them when I die. Rules for drawing down inherited Roth account holdings can get complicated. But it should be possible for your heirs to let assets build up in their inherited Roth for a long time and not pay taxes when they finally do withdraw funds.
Minimize end-of-life health care expenses. I do not want any heroic medical efforts to extend my life. I have put this directive into a living will and other end-of-life documents. My kids should read these documents and take them to heart. Not only will they be following my wishes, but they will also be increasing the amount of money they are likely to receive from my estate when I die.
Talk about what your kids want and how to reflect that in your will. One of my kids is married, and one isn't. The unmarried child asked me recently whether he would share any inheritance equally with his sibling or if the married child would receive more because my daughter-in-law was now part of our family. Good question. Potentially tricky answer. Don't wait until you're near death to talk about these matters.
Title assets smartly to avoid probate. Even if your will passes everything you own to named heirs, the conveyance process can get stuck in probate should your investment accounts and other assets have conflicting or confusing beneficiary designations. Make sure they don't.
Keep good financial records. It's hard enough to keep track of all the investment, health, financial and estate matters that I need to know. Imagine what a nightmare it would be for a child to have to reconstruct your finances without a solid set of financial records. These records need to include paper and, I recommend, digital copies of all documents. They also should include passwords providing online access to account information. I tend to trust cloud-based digital storage and "vault" services, but respect people who believe that digital records eventually will be hacked and stolen. Whatever your preferences, make sure your children and other heirs have access to your financial information. Give strong consideration to formally including at least one child in important financial decisions as you get older. They need to know this stuff, and it's likely you will need their help, too -- decision-making skills atrophy with age.
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