About 30 million American households provided care for an adult over the age of 50 in 2015, according to the AARP Foundation. Experts expect that number to double over the next 25 years as the Baby Boomer generation ages.
For many of us, life in our 40s, 50s or 60s will not only include caring for children as they become independent, but also caring for aging parents or relatives as their ability to live independently wanes. These adults are known as the “Sandwich Generation,” who are sandwiched between caring for aging parents and children.
As the U.S. ages, the need for caregiving will be as common as the need for childcare. And families must start planning to care for their aging relatives, just as they plan to care for their kids.
Start With A Conversation
The first step in the planning process is to have a conversation with your parents or aging relatives. Talk to your parents about this long before the need for hands-on care arises so that you can take your time developing a plan — and structuring both their finances and yours in a way that can support them through the end of their lives.
Find out how and where your parents would like to live if a time comes when they can no longer care for themselves. How do they feel about assisted living, in-home care or memory care? Is it more important for them to be close to their current home or to their children?
Additionally, make sure that you understand your parents’ goals for the end of their lives, including who will make medical decisions and manage their finances and how they would like to be memorialized.
Understand Your Family’s Finances
Once your parents have a sense of what they would like their final years to look like, they need to figure out what they can afford. You can’t plan for aging parents without understanding their financial situation.
As you would with your own finances, start by asking your parents about their assets. Include liquid assets like retirement accounts and investments, as well as illiquid assets like real estate. Then, incorporate any income they receive on a monthly basis: Social Security, pension payments, distributions from their retirement accounts, and any income they earn from working.
Next, explore their current expenses, including cost of living expenses — rent or mortgage payments, car payments, food, utilities, et cetera — and any debt burden they carry. While you’re talking about this, set them up to make automatic payments on these bills, if they don’t already.
Consider their future expenses too. Make allowances for new cars, and if they currently live in a multi-story house, consider the cost of moving to a ranch or an apartment home if their health requires it. Make sure all of you understand the costs of in-home healthcare and assisted living, as well as funeral and burial expenses.
Work with your parents or hire a financial advisor for them to find out whether they have sufficient assets and income to support them for the rest of their lives. Can they maintain their current lifestyle and have enough money in reserve for unforeseen healthcare or long-term care costs?
Preparing Your Own Finances To Support Your Parents
If there is a gap between how much your parents have and how much they are likely to need, you and your partner, siblings, or other family members need to have a conversation. Are you willing to help your parents fill that gap? If so, are you financially prepared to do so?
Think about the different types of financial or in-kind help you could offer your parents. Do they need supplemental income from their children to help them meet their day-to-day expenses? If so, talk to them about how they could reduce those expenses — downsizing their home, for example — so that you can save your assistance for sudden expenses. If reducing their expenses is not an option, talk to your family about sharing that cost.
In the longer term, are you or your siblings willing to care for your parents in their home, or to invite them to move in with one of you? Caregiver burnout is a widespread problem for adults — especially those who are also caring for children — so carefully consider this before you offer it as an option.
If you expect that your parents will need some kind of paid assisted living care, such as a nursing home or in-home care, estimate the annual cost and talk to your siblings about how you could share that cost if your parents are unable to bear it.
Talking about finances in families can be fraught, so it can be helpful for the siblings to sit down as a group with a financial advisor to come up with a plan together.
Legal And Medical Planning
If your parents do not have an advance directive and a will in place, connect them to an attorney as soon as possible so they can create those documents.
A power of attorney specifies a person who can make decisions on your behalf if you become incapacitated. And advance directive is a POA that specifically deals with healthcare. Make sure that whoever takes on this responsibility for your parents understands their wishes for the end of their lives, because they may have to make decisions at that time.
In their will, your parents should designate in detail who will inherit their property and assets. Have them go into as much detail as possible to avoid fights among their beneficiaries after their death. This is also a good time for your parents to create a personal property letter to designate specific beneficiaries for their other “stuff.”
Work with your parents and gather all of their paperwork and save it in one place. This should include all these legal documents — their will, advance directive, and power of attorney — as well as deeds to their homes, titles to their cars, and keys to any safe deposit boxes. Provide digital copies to those who may need them, including a financial advisor or siblings.
If there is not enough time to put detailed estate planning documents in place, talk to your parents about creating a Transfer On Death provision for each of their accounts. A TOD is similar to a beneficiary designation — it passes the assets in the account to someone else when the account owner dies. Similar to a retirement account beneficiary, the TOD can list multiple people with specific percentages.
Revisit Your Plan Regularly
Once you’ve consolidated your parents’ financial and legal documents and planned for likely scenarios, make sure everyone involved — including your spouse, your siblings, or anyone who might need to be involved in decision-making on your parents’ behalf — understands where things stand.
On your own, talk to your financial advisor about any changes you need to make in order to care for your parents. Talk not just about the most likely scenario but also the best- and worst-case scenarios for your parents’ health and finances. Your advisor can help you create basic contingency plans that you can develop in more detail if you need them.
As your parents age, check in on this plan every year or so to see if any relevant facts have changed. It’s much easier to modify an existing plan than to create one from scratch, so even if family relationships or healthcare needs change suddenly, having a plan will help you feel much more secure.
Losing a parent can be stressful, exhausting, and deeply sad, and navigating finances while respecting family relationships is never easy. The sooner you plan for the final chapters of your parents’ lives, the less you’ll have to think about your finances as they actually age — and instead you can use that time to have conversations and experiences you and your family will treasure after they’re gone.