Senior citizens need to discuss their financial situation with adult children

Jan 2013

As we rapidly approach the holiday season and begin thinking about spending time with family members, this is also an important time to think about the future. For seniors this means having a conversation with their adult children concerning some very important matters.

Although it is generally acknowledged that people live longer, people often forget that there is a significant financial consideration to living longer: the longer you live the more it will cost you.

Seniors are always worried that they will run out of money and have to rely on their children for assistance. To prevent this, seniors need to have a serious discussion with their children about their finances before the need arises and before there is a financial emergency.

In many cases, it is advisable to meet with a financial advisor to have a game plan prepared. The more informed adult children are and the more planning involved the less likelihood that catastrophic results can occur. No one wants to make a call (or receive a call) that says a parent is out of money and desperately needs help. Due to the severe recession, lack of growth, market crash, etc., more and more families are struggling to make ends meet late in life.

When seniors meet with their adult children to discuss their finances, the conversation should cover several subjects including:

1.payday loans The names of doctors, lawyers and other advisors. In addition, it is probably a good idea to have a detailed list of all medications and the pharmacy where prescriptions are filled. These documents should be kept in a safe place and the location should be known.

2. Review your estate planning documents to make sure they are up to date. Failure to have an up to date estate plan can result in serious unintended consequences. You should determine if a trust or other documents are needed. Make sure the trustee/personal representative of the estate remain able to serve following death and are the people you want to represent you. Review the beneficiaries of the estate and when distributions are to be made.

3. Review beneficiary designations for IRAs, 401(k)s, annuities and life insurance policies. Failure to have proper designations could have significant tax impact as well as trigger rate probate following death.

4. Most adults need a durable power of attorney. This is a simple document that designates someone else to execute financial and legal documents on your behalf. Whoever is designated as holding the power of attorney should know of its existence and where the power of attorney is located. Having documents executed without knowing how to locate the documents means that the documents will not protect you.

5. Review insurance policies to determine if the coverage is adequate or if you need additional insurance. Sometimes seniors have purchased long term care policies but their children do not know any details.<!> Each policy has unique features – elimination period before benefits will be paid, amount of coverage, etc. Since the cost of long term care is substantial it is important that the information regarding the policy be known before there is a problem.

6. With regards to your investments, many decisions have to be made. It is important to review the asset allocation to make sure that it is appropriate. After retirement, individuals need some of their portfolio allocated to growth. Often seniors are very risk averse and fearful of the market; as a result, their investments are sitting in cash or other fixed-income investments. Unfortunately these type of investments, although needed in the portfolio (especially if there are withdrawals) provide no growth. Traditional “safe” investments, such as money market or saving accounts, are paying less than 1/2 % per year. CD’s are not paying much more. Considering that inflation is at least 2% per year this means to stay even, your investment strategy requires taking some risk.

Conversely, when withdrawing from the portfolio you need to make sure that the portfolio is not too aggressive considering your personal situation. Since distributions from retirement plans are taxable and must be made beginning at age 70½, there are many decisions regarding tax issues that need to be made when withdrawing money from the portfolio. Often individuals take actions because they think it is more tax efficient when in reality that is not the case.

Failure to have a proper balance of bonds and stocks can lead to the direst of consequences – running out of money! To avoid this you need to be proactive with respect to your investments.

Having a financial discussion about things that will happen after we pass away is not easy, but nothing can be more important than getting your financial house in order. And by doing it now, it will provide you and your adult children peace of mind so you can enjoy the time spent together even more this holiday season.


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