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Have That Talk With Your Parents

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The Tampa Tribune

Published: January 13, 2008

As an adult, talking to your parents about their finances can be as hard for you as it was for them to talk to you many years ago about sex.

Both conversations, however, are absolute must-haves. But this month you have an edge. The new Medicare drug plan has opened for enrollment, and that gives you the opening you need to have a conversation about finances and the future with your folks.

Here's a look at the ground you want to cover:

Make sure they're on stable financial ground. Your parents will likely live a lot longer than their parents. It would be nice for all involved if whatever assets they have stockpiled for retirement (supplemented by Social Security) could last as long as they do.

But to make that happen, you need to understand - or bring in a trusted financial adviser who understands - how your parents are living financially. Do they have a substantial pension? Are they draining their savings? Are they subsisting on Social Security? In other words, do they have enough?

Help make their money last. Although the financial industry has placed a lot of emphasis on accumulating assets, we haven't talked enough about withdrawing money from retirement accounts in a way to make it last. If your folks aren't sure how much they can safely withdraw each year, 4 percent of total assets is usually a good starting point.

But then take the time to access some online retirement planning tools, such as troweprice.com, which can help you get an even more accurate idea. If they don't like the idea of being subjected to any market fluctuations, you may want to consider an immediate annuity that can convert their retirement assets into an income guaranteed to last for life.

Consider where they want to live. You need to understand what sort of day-to-day life your parents envision today and in the future. Are they willing to move closer to you or one of your siblings to make taking care of them easier? Do you or they envision them moving in with you?

For some people, their most important goal is to live the rest of their lives in the family home. If your parents are among them, one way to increase their incomes and simultaneously guarantee that they will be able to stay at home is to consider a reverse mortgage. This is an arrangement by which, essentially, the bank buys the house back from your parents either with a lifetime of monthly payments or by a single lump sum. If your parents live longer than the bank expects, it can turn out to be a very good deal for them. If they live a short time, it's a better deal for the bank.

AARP.com is full of great information on how these loans work. But note: Make sure your parents want to stay in the home for themselves, not because they're intent on leaving the family home to you - particularly if you don't want it.

Do they have the proper paperwork? Your parents need to have three documents that will allow you to manage their health and finance needs should they become ill or incapacitated. These are:

•A living will, which tells whether they want life support.

•A health care proxy, which gives you or another individual the power to make their health care decisions.

•A durable power of attorney for finances, which gives you or another individual the power to make their financial decisions.

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