BOSTON — While family conversations around important topics such as retirement preparedness, eldercare and estate planning can be difficult and aren't always easy to initiate, parents approaching retirement might be pleasantly surprised to discover their kids expect to help, according to the latest Fidelity Investments® Family & Finance Studyi. The research reveals adult childrenii have their parents' backs and far more than parents may think: on the subject of money, although a majority of parents (93 percent) feel it would be unacceptable to become financially dependent on their children, only 30 percent of children feel the same. When it comes to health, while many children surveyed said they or a sibling would care for their parent if they become ill, 45 percent of parents and kids aren't in agreement on this issue.
Despite this welcome news for parents, the study suggests several areas where they need to speak up to ensure their wishes are heard, as it appears the children may not be getting the message. In fact, nearly four in 10 families disagree as to roles and responsibilities as parents get older. Among the other communication gaps:
- Estate Execution: Although 92 percent of parents expect one of their children will assume the role of executor of the estate, when asked, more than one in four (27 percent) of the kids identified as filling this role didn't know this. Of note, 55 percent of parents expect the oldest child to be executor.
- Caregiving: While 72 percent of parents expect one of their children will assume long-term caregiver responsibilities in retirement if need be, 40 percent of the kids identified as filling this role didn't know this. Of those that do, 58 percent are women. One surprising trend: a growing number of Millennials are providing caregiving support for a parent.
- Managing Finances: While 69 percent of parents expect one of their children will help manage their investments and retirement finances, more than one-third (36 percent) of the kids identified as filling this role didn't know this.
"These discrepancies highlight the fact that many families need to do a better job of being on the same page when it comes to financial planning, as there are real emotional and financial consequences when family conversations don't happen or lack sufficient depth," said John Sweeney, executive vice president of Retirement and Investing Strategies at Fidelity. "At some point every family will face issues related to aging, which is why it's important to take the time to sort through the details related to caregiving responsibilities and estate planning, before declining health—such as dementia or if you become incapacitated—forces the issue. Doing so can lead to far better emotional and financial outcomes for everyone."
When it comes to family conversations, the devil is in the details
Why aren't these conversations taking place? Part of it seems to be a matter of timing, since only 33 percent of parents and their children agree when it's appropriate to initiate these conversations; that is, whether to have them well before retirement, upon entering retirement or closer to when health and finances become an issue. Part of it may be that families don't realize the importance of talking these topics through: a significant portion of those surveyed have yet to discuss retirement plans (38 percent of parents, 43 percent of adult children) say it's because the subject never comes up!
Even if conversations are taking place, the depth and extent of the conversations is often inadequate, as the study uncovered significant gaps in the following areas:
- Long-term care: 43 percent of parents indicate they have not had detailed conversations with family members about long-term care and eldercare—and an additional 23 percent have not had any conversations at all. Furthermore, while 72 percent of children think their parents should be tackling the issue of long-term care/eldercare, only 41 percent of their parents say they actually are. As healthcare costs have risen in the past few years, this has become an increasingly important topic—according to the latest Fidelity Investments Retirement Health Care Cost Estimateiii, the average couple can expect to spend an estimated $245,000 on health care throughout retirement.
- Will and estate planning: While parents are more likely to believe they've had detailed conversations with their children on this subject (69 percent), 52 percent of children say they haven't.
- Living expenses in retirement: More than a third (34 percent) of parents indicate they have not had detailed conversations with family members about covering their living expenses in retirement—and an additional 16 percent have not had any conversations on the topic at all.
Shelter from the Storm: With conversation comes greater peace of mind
One thing is certainly clear: having detailed conversations around finances can help families avoid panic when it matters most. In fact, 93 percent of children who say they have had "any" detailed conversation with their parents are significantly more likely to possess greater peace of mind around these issues. Likewise, 95 percent of parents reported feeling greater peace of mind as a result of estate planning conversations.
"No matter how much wealth a family has accumulated, discussions about estate planning are essential to ensure the wishes of parents are carried out," said Chris McDermott, senior vice president of Private Wealth Management at Fidelity. "Multigenerational planning is not the exclusive domain of high net worth families. Understanding your parents' goals and expectations—and having an agreed-upon plan, including the role each family member plays—helps ensure more positive financial and emotional outcomes for all."
For those looking to initiate a family financial conversation of their own, Fidelity offers the following guidelines that have proven to be most helpful, based on numerous discussions held with families through the years:
- Initiate family discussions earlier. In the study, one-third of parents and their children say frank conversations should occur after retirement and when health and finances have become an issue—at which point, it may be too late. These conversations should begin taking place before retirement, and certainly well before any challenges arise. "It's actually a good idea for conversations about finances to be taking place among families no matter what your age, whether you are in your twenties and looking to build a strong financial foundation or in your sixties and transitioning into retirement," added Sweeney.
- Ask as many detailed questions as you can. Don't be afraid to ask even the most seemingly obvious questions. Three out of 10 families surveyed disagreed as to whether or not the children knew where to find important family documents such as wills, power of attorney and health care proxies. (For those looking for a safe, electronic storage location, Fidelity recently introduced FidSafe®, a secure digital place to store, access and share all of a families' most important documents.)
- When having discussions, follow the "voice not vote" rule. While family members should have a role in the planning process, make sure the ultimate decisions made are consistent with the wishes of the parents, who are charting the course of the rest of their lives. If a financial advisor is already involved in planning, having these discussions with the advisor can be a good place to start.
- Define family roles. Advanced planning can help define roles and choose when and how different people will be involved. For example, who will have power of attorney or be the executor of your estate? It's important to consider the personalities of each child, as well as their proximity, relationship with parents and other nuances that play into long-term decision making.
- Commit to follow-up conversations to keep the dialogue going. These conversations are not "one and done." Keep the momentum going and schedule as many get-togethers as needed—and revisit those plans at least annually, to make sure they still make sense.
For additional information on the importance of family conversations, Fidelity has resources available at www.fidelity.com/families, including educational materials such as "Time to take away the financial keys?"; "Five ways to protect what's yours," a list to help prepare for the unexpected, such as creating a will, naming beneficiaries and completing other estate-planning tasks; and "When the family's financial boss dies," which has a detailed checklist of documents families need after the key financial decision maker passes. For parents looking to get their children more engaged with their own finances, consider sending an online learning kit, complete with videos, articles and infographics about a number of financial topics such as Retirement Planning and Investing 101.
About the Study
The third biennial Fidelity Investments® Family & Finance Study, previously known as the Fidelity Investment's Intra-Family Generational Finance Study, is unique in that it surveys parents and their adult children separately on a range of financial and retirement planning topics to identify their level of agreement. The study was conducted online among U.S. parents and their adult children during the period of February 26 – March 22, 2016 by GfK Public Affairs and Corporate Communication, using GfK's KnowledgePanel®. The total sample recruited for this study included 1,273 parents and 221 adult children. To qualify, parents had to be at least 55 years of age, have an adult child older than 25 and have investable assets of at least $100,000. Their children qualified if they were at least 25 years of age, had money saved in an IRA, 401(k) or other investment account. In addition, adult children 30 and older were required to have at least $10,000 saved. This qualifier was waived for the children under 30.
About Fidelity Investments
Fidelity's goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.4 trillion, including managed assets of $2.1 trillion as of May 31, 2016, we focus on meeting the unique needs of a diverse set of customers: helping more than 25 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with investment and technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 45,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.