A Financial 'Temperature Check' for Aging Parents

The "sandwich generation." That's what they call the baby boomers, and now gen-Xers, who are simultaneously caring for their children while also lending a helping hand to their parents.

Yet while your local bookstore is no doubt crammed with books on parenting and saving for college, you'll see less on the task of lending a helping hand to aging parents, and even less on how to assist them with their financial affairs.

That may be because the topic of helping parents manage their finances isn't sexy, not by a long shot. And perhaps more importantly, older seniors are all different, making it difficult to generalize about who will need help from their kids and what kind of help they might need. Some will, as in Mary Schmich's famous sunscreen essay, "dance the funky chicken on their 75th wedding anniversaries," leaving their children with rich financial legacies and no financial headaches. Others, meanwhile, may struggle with health problems, including mental incapacity, or financial difficulties later in life, which in turn may require them to lean heavily on their kids for help.

You could fill a book on this topic. But the first step for children who are aiding in the financial affairs of their aging parents is to conduct a temperature check. As you do so, you can see how well your parents are coping financially. There's certainly no need to swoop in and take over any aspect of your parents' finances if they're doing fine on their own--that will not only create more work for you, unnecessarily, but could also create ill will and hurt feelings on the part of your parents. (Keeping up with investments and the market can also be an important diversion for many seniors.) At the same time, it's important to stay abreast of any problem areas and identify where your parents need help now or may need it in the future.

Here are some starting points--but by no means an inclusive list of them--for children who are interested in conducting a temperature check of their parents' finances. I'll tackle more ideas--including some related to estate planning, insurance, and health care--in future columns.

1. Gauge concerns and gather information.
The starting point in conducting a temperature check of your parents' finances is to have a candid discussion about where they are now and whether they have any looming financial worries or problems. Depending on your relationship with your parents and their attitude toward money, gathering information about their financial affairs may be tricky. It helps to start the discussion at a time when your parents are relaxed, not when you're in the process of gathering up tax-related documents or completing some other harrowing financial-related task.

Ask them if they have any financial concerns or tasks they could use your help with, including managing investments, managing cash to meet living expenses, dealing with financial advisors, or handling insurance, estate-planning, or tax matters. There's a lot of material to cover, so such a discussion might play itself out over several conversations rather than in a single checkup.

2. Assess current income and viability of their withdrawal rate.
One of the key questions to cover in the course of your conversation is whether your parents have the income they need to cover their day-to-day living expenses, and whether they have concerns about their assets' ability to last throughout their retirement years. T. Rowe Price's Retirement Income Calculator is a helpful--and holistic--starting point when gauging the viability of a retiree's current withdrawal rate and can help you determine if your parents' current spending habits are sustainable. (Just bear in mind that the tool uses fairly aggressive rates of return for the various asset classes.)

At the same time, check up on where your parents are turning when they need current income. Do they have at least two years' worth of living expenses (those not covered by certain sources of income such as Social Security) in ultrasafe cash investments? Have they turned to risky securities like preferred stock or high-yield bonds to generate the current income they need? This article discusses "dos" for income-seekers, while this one tackles common mistakes, including focusing on income at the expense of capital preservation.

3. Check up on filing and bill-paying systems.
Managing financial paperwork can become a real headache as seniors age, so check to see if your parents need help in this area. Are they able to put their hands on important financial documents when they need to? Are they shredding documents that include personally identifying information, such as bank and investment statements? Are bills getting paid on time?

If they answer yes to these questions, there's probably no need to engineer an overhaul of their organizational system. Introducing a completely new framework for what goes where is bound to bring unnecessary confusion. Instead, make sure you understand whatever system your parents are using so you could locate important documents if needed. Also emphasize the importance of creating a master directory--a central repository that specifies your parents' assets, account numbers, financial intermediaries and phone numbers, and so on--and keeping it in a safe place. (My book includes a chapter on creating such a directory.)

If your parents need more help with their financial documents, helping them set up a simple and intuitive filing system can be a godsend. Keeping the categories broad (for example, "Current Year Taxes," "House," "Car," "Insurance") will cut down on the number of files they'll need to oversee.

4. Assess identity theft protection and awareness.
Seniors are frequent targets of scams, including identity theft, so it's important to make sure that aging parents understand the key types of fraud and the steps they can take to protect themselves. Shredding documents with identifying information is a good starting point (and a cross-cut shredder is best) but it's also useful to discuss other pointers, such as not leaving mail (especially bills) for pickup in the mailbox and not sharing personal or financial information with anyone who calls you on the phone.

If your parents are computer users--and most seniors are--ask about their online security systems and share tips for staying safe online. This article shares some tips for preventing identity theft, as does this one; readers have chimed in with helpful ideas in the Comments section that appears below both articles.  

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