Aging Parents' Finances: The Time to Talk Is Now

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Adult children and their aging parents agree on the importance of discussing financial matters, but whether they actually do so is another story. Joining me to discuss this topic is John Sweeney. He is executive vice president for retirement and investing strategies for Fidelity Investments.

John, thank you so much for being here.

John Sweeney: Christine, thanks for having me.

Benz: As part of a recent intergenerational family study, Fidelity put out some findings about how families communicate about money, or perhaps do not communicate about money. I thought there were some interesting takeaways for families attempting to navigate these issues. But first, let's talk about the findings.

It seems to me that adult children of aging parents as well as the aging parents all agree that it's important to communicate about these issues. But in terms of execution, families seem to be falling short. Let's talk about that.

Sweeney: They are. You're right. That communication actually builds confidence. And what's important for people to remember is when they have transparency of each others' the situations, they have more confidence in their parents' ability to retire and in their adult children's ability to be able to sustain their own lifestyle. So, that created some of the interesting findings for us when we surveyed both aging parents who are preparing to retire and then their adult children who are probably in their peak earning years and may often have children of their own.

What we found was that the adult children, those 40-some-odd-year-olds, were worried about their parents' ability to retire. And they weren't sure how they were going to manage long-term care. They weren't sure how they are going to sustain their lifestyle in retirement. And they were worried that they might have to subsidize their parents' retirement or take them in if care was needed.

The good news is their parents are actually in better shape than they are admitting to their children. So, when you have this conversation between the multiple generations, you actually brought some of the anxiety level down, and you had a much more fulfilling and confident family situation post-conversation.

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Benz: So, let's talk about some of the problems that can occur when families do not communicate about these matters. Let's talk about some illustrations of why you should make sure that you're having these conversations preemptively.

Sweeney: We actually took some training from FEMA, from disaster preparedness. And there is a phrase that FEMA uses: You don't want to be standing knee-deep in water, exchanging business cards. So, if you think about any kind of societal or civil disaster preparedness, they know what role each department is going to play--the fire department, the police department, the hospital workers. They all know what their role is. They know how to communicate. They know protocols, and they do drills to simulate different situations.

So, think of this conversation as essentially your own family drill. You know that there is going to be some kind of life event--whether it's a health scare or it's the death of a family member--and you want to know what everybody's role is and what their wishes are and what potential situations might need to be taken care of fairly quickly. You want to be able to have those conversations when you're not in duress. You want to be able to have them in a very calm and negotiated manner. Remember that you want to respect the wishes of your parents. Ultimately, they are the ones making the decisions, and they are the people who we should look to for direction.

But there are a lot of tools that we can help folks with to open up the doors for those conversations, whether you're the adult child [who's trying to communicate] with your parents or whether you are the parent welcoming that discussion with your adult children.

Benz: So, let's say that you're a family attempting to implement this communication, what are some tips that you would give? Are there any best practices--and obviously, families are all different and relationships are all different--but are there any ways that families can make this work? Any way they can make these conversations as productive as they possibly can be?

Sweeney: The first phase is really opening up the door to the conversation. Sometimes, the adult child will pass an article to their parent and say, "Here is an example of a friend of mine or somebody in my community who had to care for their aging parent, or there was a long period of probate because the parents' will was not well constructed." And sometimes, it's the parent saying, "I had a friend whose children went through a situation when one part of the couple passed away." So, there are examples that you can use in own community or your own lifestyle to open up the door and essentially begin the conversation with your parents.

So, what we try to do is we try to look for those opportunities. Sometimes, it's when you have a family gathering, whether it's a holiday or even an explicit opportunity to get people together. And with today's mobile society, often we don't live in the same cities that we grew up in, or multiple generations of children live in different cities. So, the opportunity to get together on some scheduled call and say, "This is an important topic that we do want to talk through [before we] have an issue to really address, a death or a health issue. Let's talk about it now. Let's get some game plans in place, understand the role that each family member is going to play, and then we're playing offense when that event inevitably does occur."

Benz: So, what are the key things you want to be sure to talk about? You want to talk about who is making which decisions, essentially what my assets are, and how I think I will be covered or not covered in case I need additional care. What are the other things that should be on the table and part of that conversation?

Sweeney: Care is one of the most important issues because it often occurs slowly and occurs earlier than the inevitable death. But when you talk about declining health, sometimes people need different levels of care, and sometimes it's more progressive care as people age. So, the question of who is going to pay for the care--who is going to provide for that care--differs, obviously, with every family situation. If there is a situation where an adult child can bring a family member into their own home and care for them there, many families have historically tried to go that route. Obviously, if that doesn't work geographically or for space or work reasons, you may have to pay for care either in the home of the aging parents or, obviously, in a nursing home, if the care is more acute.

So, the question of what type of care is needed, understanding that that care may progress to different stages over time, is important to think through. And understanding whether aging mom and dad have enough resources to be able to pay for those fairly significant expenses, if and when they should occur.

Benz: John, this is such an important topic. Thank you so much for being here to share these concrete ideas for families who are attempting to navigate this issue.

Sweeney: My pleasure, Christine. Thanks.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.