Understanding your parents’ financial situation is a vital part of putting your own financial house in order. Before you plan your retirement dreams, you need to know whether you’ll need funds to support your parents. And, if you know that one day you will receive a sizeable inheritance, there may not be any need to scrimp now.Credit: Image: photostock / FreeDigitalPhotos.net
Stereotypically, elderly parents are reluctant to talk about their finances. However, according to a 2005 study by The Hartford, 76% of parents were comfortable talking finances with their adult children, while only 45% of boomers felt comfortable discussing these issues with their folks. So, why is there resistance?
One reason may be denial. It’s hard to admit that your parents won’t be around forever. Financial fears may come into play since it’s overwhelming to imagine supporting both children and parents. And, frequently, there’s a measure of avoidance; perhaps a sibling thinks another sibling should deal with finances.
If initiating these conversations is daunting, ask your financial adviser to join in. Recently, I joined a conversation between a woman and her father. The woman knew her parents had assets, and wanted to know approximately what she could expect one day as an inheritance. The conversation was eye-opening, since my client learned the inheritance wouldn’t be large enough to base her retirement on, as she was counting on. Upon their retirement, her parents purchased an annuity, which covers their current and future needs, but would leave very little in terms of an inheritance. Now my client has to beef up her savings plan in order to make sure she, too, can retire one day.
While dialogue is important when it comes to your – and your parents’ – fiscal situation, respect your parents’ right to keep their affairs private. If they don’t want to review the details with you, suggest they review them with a financial adviser for a “safety check.” Don’t imply that you expect an inheritance; remind them that you understand their money is theirs. Asking, “What would you like your legacy to be?” can lead to a discussion of values, wishes, goals, and also, estate plans. Keeping an open communication channel can help eliminate unpleasant surprises in the future.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.