By Roger Wohlner
Money conversations between parents and adult children can be difficult at best. Issues such as your parents' investments, retirement planning, estate planning wishes and elder care issues are never easy. A recent survey by Fidelity, which involved 1,058 parents of at least 55 years of age and 159 children (of 30 years of age or more), highlighted some of the key issues involved.
Suggestions for a successful family discussion. The Fidelity survey offers these suggestions:
Initiate family discussions early.
Don't be shy about bringing up detailed questions.
Let your parents have the final say about their care and their finances.
Have follow-up conversations.
Within this framework, let's take a look at some of the topics that might be covered.
Are your parents' investments properly structured for this phase of their life? Their investment portfolio will likely be a key funding source for their retirement and perhaps their long-term care needs. The right investment mix will vary from situation to situation. There needs to be a mix that provides for growth (to stay ahead of inflation) as well as liquidity (to meet any withdrawal needs).
What sources of cash flow do your parents have to fund their retirement? These sources might include:
Retirement accounts, such as a 401(k), individual retirement accounts, etc.
What are your parents' wishes in terms of passing on their wealth in the event of their death? Typically a surviving spouse, children and grandchildren are the beneficiaries, assuming there is an estate to pass down. They may also have charitable intentions or the desire to leave something to a friend or more distant relative. Also remember that there may be non-monetary assets to deal with as well.
Do you have an inventory of your parents' assets and liabilities? What do they own and what do they owe? Among the assets and liabilities to inventory could be:
Real estate (residence, vacation home)
Interest in a business
Checking and savings accounts
Art and collectibles
Credit card debt
Other loans outstanding
What types of insurance coverage are in force? Typically, they may have a life insurance policy and hopefully long-term care insurance. Both are key assets that should be understood by both parents and adult children.
These conversations can be difficult because there is a lot at stake.
How will your parents provide for their retirement?
Where will the money come from in the event of a long-term care situation?
Who will take over your parents' financial affairs in the event they become unable to do so?
What are your parents' wishes, including disposition of their assets upon their death, burial, staying in their home, etc.?
Besides taking care of all of these issues, a lack of communication and planning can be costly to the family. You need to consider taxes and how to transfer your parents' wealth to the next generation. Although this may sound as if it only pertains to the very wealthy, this is not the case.
What is really at stake is the opportunity for parents to communicate their financial wishes to their adult children, and for children to help their parents make those wishes come true.
There is nothing easy about discussing these issues and having these financial conversations as a family. But any difficulties that may exist will be dwarfed by the potential guilt and regret felt by both parents and children if this dialogue is pushed back. You should talk about money now, before resolving these issues becomes increasingly difficult.
Roger Wohlner, certified financial planner, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Illinois, where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations and endowments. Roger is active on both Twitter and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments and retirement plans.