Financial conversations can be awkward. Many American families do not talk about money. Is your family like that? If so, you probably already know that an adult child’s well-intentioned offers of assistance may be dismissed by his or her elderly parents. They remember you in diapers, after all. They also may place a greater value on their independence as they get older and may resist financial disclosure and consultation with their children even more.
Adult children, however, cannot simply turn a polite blind eye to their parents’ finances. Cognitive impairment and financial scams are brutal realities of aging. Both can wreck your parents’ finances. So, perhaps the best gift of all this Mother’s Day is to be brave enough to have a candid conversation with your Mom about money. Here are four steps to get started.
Step #1 – Get Mom Involved
Has your mother been significantly involved in the big financial decisions with your Dad, or does he handle them on his own? Does she participate in the overall strategy? Does she meet with financial advisers or brokers? Does she know where all the money is kept? Or is she in the dark, and perhaps, only focused on the day-to-day management tasks, such as paying bills and managing the checkbook? If she is very involved, that’s great because women tend to outlive their husbands. That means she will likely be handling the “big decisions” at some point anyway. If Mom isn’t significantly involved, she needs to be! Here’s how you can help:
Encourage Mom to get more involved now. If Dad resists, she needs to be blunt and ask him how she will know what to do if he is incapacitated or dies. If Dad still resists, you may need to step in and help Mom by also asking to talk to him. (This isn’t about not trusting him to handle the family’s financial affairs; this is about being practical about the likelihood that he won’t be the one handling things on his own down the road).
Mom needs a list of accounts. That list should include checking, savings, certificates of deposit, investments and insurance policies. For each of these accounts, Mom needs to know the following: financial institution, the account owner, the account number, the balance and the beneficiaries. Your task is to hold Mom accountable for getting the list and making sure she understands it.
Mom needs to attend all meetings. Mom should be included in meetings with CERTIFIED FINANCIAL PLANNER™ professionals, certified public accountants, investment brokers, insurance agents and any other professionals involved with your parents’ finances. Stress to her why this is so important.
Mom needs to see the estate plan. Where are the wills, trust, power-of-attorney, healthcare proxy and related documents? Who is the lawyer that prepared these documents? Mom needs to know what to do and who to contact in the event of Dad’s incapacity or death.
Step #2 – The Checkup
Your Mother’s finances need a checkup and maybe some adjustments. Again, your gift to her is that you can make it easier for her:
Make sure Mom has enough emergency cash. A rule of thumb is to have a cash stash equal to three to six months’ worth of living expenses. To get a more precise estimate of the cash reserve she needs for her situation, help her add up what it could cost her if everything breaks or goes wrong at the same time, including such items as insurance deductibles, new air conditioning unit and new tires. Not having enough cash readily available (in her checking account, I don’t mean under her pillow) could lead to emergency borrowing or liquidating an investment at a bad time.
Make sure Mom has the proper insurance coverage. Yes, give Mom an audit! Review her insurance policies with her to:
- Make sure that the policies are still appropriate for her situation. For example, if she’s retired, she doesn’t need a disability policy. Or, if her car is really old, maybe she doesn’t need to insure it for as much value.
- Make sure that she has the right types of insurance for her age and situation. Does Mom need long-term care insurance, for example? A licensed professional can be a big help as she evaluates and selects a policy.
- Make sure that insurance policies are kept current. Ask your mother to add you as a secondary person to notify if premiums are not paid. There are horror stories of people buying insurance and forgetting to pay the premiums, and then the policies aren’t there when they are needed.
Mom needs to make smart decisions about any debt. Here are your opportunities to help:
- Take inventory of her debt obligations. Get the lenders’ names, account numbers, payment due dates, balances and interest rates.
- Map out a plan to ensure all minimum payments are made each month. If that’s not possible, consider liquidating a portion of her savings or investment accounts. If none are available and she can’t meet her monthly debt payments, seek out credit counseling. The National Foundation for Credit Counseling® (NFCC®) is a good place to start.
- If Mom has a monthly cash “surplus” available (total after-tax monthly income minus total monthly expenses minus total monthly minimum debt payments equals monthly surplus), then use it toward the debt with the highest interest rate.
- Give special attention and priority to any debt that “balloons” (comes due all at once) or that has an introductory low interest rate that will rise in the future.
- As higher interest rate debt is paid off, apply the surplus and the eliminated debt payment to the next highest interest rate debt. Rinse and repeat! This will minimize the total interest that Mom pays in the long run, and it will help reduce any stress or guilt she might have about the debt.
Step #3 – Address Risks
The risks we face evolve with our stages of life. In our 20s and 30s, when many are starting careers and families, some big risks include: disability, job loss, cash emergencies and death. On the other end of life, the risks are quite different. For Moms in their 70s and 80s, for example, some big risks include: sustainability of reliable income, need for long-term care and the need for someone else to make financial and healthcare decisions. Here are some items to consider.
Mom needs reliable lifetime income. Besides Social Security, what are the sources of income that she can rely on for the rest of her life? Pensions are great, but they are less common today. Accordingly, most retired Americans need to “create” additional income to fill the gap between Social Security and their monthly living expenses. For example, if Mom gets $1,500 from Social Security and her expenses run $2,500, the $1,000 shortfall has to come from somewhere. Five common approaches include:
- Drawing on assets. The idea is to take cash from available accounts to meet the shortfall. Situations vary widely, but most accounts will fall into four major categories: retirement accounts (such as 401(k)s, 403bs, 457s, and IRAs); bank accounts (such as checking, savings, money market, and certificates of deposit); regular investment/brokerage accounts; and home equity.
- Invest for passive income. The idea is to purchase income-producing property, such as rental real estate.
- Purchase an annuity. These products are available from insurance companies and come in many flavors. The basic idea is to take a portion of available assets and give it to the insurance company who will, in exchange, promise to pay a monthly income for the person’s lifetime.
- Access home equity. This may be done in a variety of ways such as taking a “cash-out” loan or refinancing, selling and downsizing, selling and renting, or remaining in the home and getting a reverse mortgage loan.
- Build a plan and combine strategies. Often done by a CERTIFIED FINANCIAL PLANNER™ professional, a personalized plan will combine the above strategies to increase the likelihood of a sustainable lifetime income while also maintaining flexibility and the growth potential of assets.
Mom needs a plan for long-term care. If she doesn’t have a plan, the whole family could be impacted. Long-term care is a broad term often used to describe a range of care that someone may need: home care, assisted living, nursing-home care, continuing care retirement communities and memory care centers.
Unless your Mom can qualify for Medicaid (which means she is essentially broke), taxpayer-funded benefits are generally not available. In many families, adult daughters (and, sometimes, other family members) will step in to help when Mom needs personal care assistance (bathing, getting around, eating, etc.). However, there are serious negative “side effects” to this approach that include interruption of the daughters’ careers and personal lives that are often not considered when putting a plan together for Mom. The other problem with the family care approach is that it can quickly become inadequate if Mom needs medical care. All of this means your Mom needs her own plan to get care and pay for it.
- How to get care. Help Mom look at home care agencies, independent and assisted-living facilities, and nursing homes while she is mobile and competent. Get her input on what she wants just in case the need for care does arise.
- How to pay for it. If Mom isn’t broke or wealthy, she will need to know (and so will her family) how she will pay for her care. Depending on the frequency and intensity of care she receives, we are talking about a few thousand dollars a month on the lower end to $10,000 or more a month on the higher end. The options to pay for such a significant monthly expense are not that complicated: Mom either pays for the care out-of-pocket from her savings and investments or she purchases insurance. Don’t wait until the need arrives to figure this out. Long-term care insurance won’t be an option once she needs care. For a better result and everyone’s peace of mind, make the funding of Mom’s potential need for care part of her overall financial plan.
Mom may need someone to handle her financial affairs. She needs to meet with a lawyer to draw up a legal document giving someone else the ability to make financial and legal decisions for her when she can’t (this is often called a power of attorney, although the name can vary by state). The person she selects needs to have the time, the ability and the willingness to help her in this crucial role. And, above all, the person who Mom selects should be someone she and her family trusts. Having someone local for Mom is also a plus.
Mom may need someone to make healthcare decisions. Similar to the power of attorney, a healthcare proxy (again, the name varies by state) document is drafted by a lawyer. The proxy has the legal authority to make medical and healthcare-related decisions for someone else. With many families spread out across the U.S., it is a good idea to have a few “back-up” persons listed in the document.
Step #4 – Help Her Stay Organized
We humans tend to hold onto things. For many, this is borne out of a “scarcity” mindset (memories of the Great Depression, the Great Recession, or the more recent COVID-19 pandemic). Some of us simply don’t know how to get more organized. Help Mom get her finances simplified with these seven action items:
Consolidating bank accounts. As interest rates fell over the past decade, many retirees “chased” yields and aggressively pursued bank offers to open a new account and get a higher interest rate on their savings or CDs. When the excitement died down, many people were left with five or more accounts with both online and local banks. It’s time for Mom to close all those accounts and do business with one or two banks (at least one should be local where she can go in person).
Consolidating safety deposit boxes. While she’s at it, Mom needs to get down to one safety deposit box. And someone needs to be added as a “signer” on the box; in the event Mom is incapacitated or dies, it makes things much easier if someone else can access what is in the box without a lot of extra hassle and legal expense.
Consolidating credit cards. All those credit card offers of “introductory zero percent” interest rates and “earn extra points” may have left Mom with more credit cards than she really needs. If Mom is using her credit cards to live, it may be time for the previously mentioned credit counseling. Pick one or two
accounts with the best combination of available credit and interest rates to keep. Cancel everything else.
Consolidating advisers. Mom may have done business with a variety of advisers over the years and have financial, investment and insurance products all over the place. Look for opportunities to consolidate these accounts and advisers.
Setting up automatic bill pay. It is really easy to forget to pay a bill. Set up Mom’s recurring bills to be paid automatically from the same account where her Social Security benefit is deposited.
Freezing her credit. If Mom doesn’t plan on taking out any new loans or credit cards, contact each of the major credit agencies (TransUnion, Experian and Equifax) and place a hold on her credit to make it more difficult for identity thieves to open new accounts in her name.
“Right-sizing” her home. Explore strategies for Mom to remain independent. Ask her now. If she’s like my Mom, she’ll tell you what she wants and where she wants to live. It may make sense for her to stay right where she is long term, or it may be better for her to move into a facility with an independent apartment. Many of these facilities offer homecare-type services and have assisted living onsite as well. For those with the upfront cash available, a continuing care retirement community may also be worth consideration. Most of all, Mom will likely want to live close to her family when she starts needing some help. Don’t wait. Talk about that now.
As I’m sure you recognize, this isn’t an exhaustive list of “what to do.” Each mother’s situation could vary quite a bit. The key is to get the conversation started. Remember, that’s your gift this Mother’s Day! If you need help along the way, and your Mom doesn’t have a CFP® professional for a son or daughter like mine does, then use the Let’s Make A Plan search feature to find a CFP® professional.
I dedicate this article to my Mom, Connie. Happy Mother’s Day, Mom!