By Christine Fahlund on November 15, 2012
As you prepare for the later years of your life—including finances and plans for possible long-term care—you may want to involve your adult children in the conversation. Doing so is important, because your plans may have an impact on their future as well as yours.
If you are concerned that some day you may need assistance managing your finances, your adult children likely will be the ones to assist you. There are so many financial decisions that need to be made in retirement and so much information to handle. It's a good idea for parents to discuss these matters openly with their adult children before any needs arise and even consider including a financial advisor as an ongoing part of the team. You may find that these conversations lead to development of another, entirely new relationship with your children.
Creating an agenda can help you stay on track over the course of several conversations, which should include these subjects:
- The location of important documents, including lists of advisors, doctors, and other providers. Compile your essential documents, names, phone numbers, and addresses in a binder or on your computer. Keep them in a safe place, and let your adult children and any other appropriate individuals know how to access the information, if necessary.
- Your wills and/or revocable living trusts. Are they up to date and properly drafted? (You do not have to divulge the contents of these documents when you discuss them with your children unless you want to. What they need to know, most importantly, is that you have plans in place and that you review and update them periodically.)
- Make sure you have a will that was drawn up by an attorney and that you've reviewed it, along with the titles of your accounts and any beneficiary designations, within the last several years to accommodate any major changes in the family, your wishes, or estate tax laws. If you have a revocable living trust, ask your attorney whether to fully fund it at the present time.
- Durable powers of attorney (POA). These documents enable you to give a specified person the authority to make decisions on your behalf if you're incapacitated. You and your spouse should each have a durable power of attorney for both finances and health care—and you should inform the individuals you have named as your agents where the original documents are located. Note that it is not necessary to name the same person(s) as your agent for health and finance. We encourage you to add POA to your investment accounts as well.
- Arrangements for long-term care. Long-term adult care can be extraordinarily expensive: It's generally upward of $200 per day and costs considerably more in many parts of the country. Generally this is described as care required to help with activities of daily living, such as bathing, dressing, and walking—not medical needs. If you don't have long-term care insurance and you are already in your late 60s or older, discuss how your adult children might assist you if such care is ever needed.
- Liability insurance. Seniors may be more vulnerable to lawsuits, so consider increasing your liability insurance coverage as you age. Ask your agent about an "umbrella policy" if you don't have one.
- Financial information and decisions. As you approach your retirement date, be sure to review your financial decisions with your adult children for their perspective. There could be strategies they have heard about that could save you money or maximize your income. For example, the press has recently been highlighting the potential advantages of at least one spouse waiting to take Social Security benefits and quantifying the amounts retirees should consider withdrawing from their investments each year to avoid potentially running out of money late in retirement.
In an ideal world, you would start easing into the process of having conversations with your adult children when you are in your 50s, while you're still working and have yet to make these important decisions. Generally speaking, the sooner you begin the conversation, the more effective it can be. Consider the following suggestions for starting this discussion with your children:
- Initiate the conversation in person, at times of low stress, preferably while you're healthy. You may be unsure of what to do if your portfolio has dropped significantly during one of the recent market downturns or if some of your plans need to be updated.
- You lead the discussion, and provide them with only as much information as you feel comfortable sharing. Explain that they may be able to help you make some of your retirement planning decisions, while respecting your right to accept or decline their ideas.
- Consider talking to them about your current and future living and driving arrangements. If you're older, tell them how long you plan to live in your current home and what you are considering doing about housing if your situation changes.
Let your adult children know if you already have a relationship with an advisor or if they can help you find a professional with the particular skills and expertise you need. Then suggest meeting as a group. There's no one right way to proceed. The conversations may be very new and different for all of you—both financially and emotionally.
You don't have to solve everything or share the information all at once. Take your time and enjoy the relationship and new bond you form with each other as the result of engaging in this process.