Fidelity® Study Reveals Communications Gaps Exist within Families On Essential Financial Topics, Including Retirement Planning, Eldercare, Inheritance
BOSTON — When it comes to important but difficult conversations about finances, many families are struggling with the timing, according to Fidelity Investments® latest Intra-Family Generational Finance Study. The study showed that almost two-thirds (64 percent) of parents and their adult children1 are at odds as to when detailed conversations on key financial topics, including retirement preparedness, eldercare and estate planning, should take place. While parents would prefer to wait until after retirement, their children want the conversations to take place well before their parents retire or experience health issues.
How wide is the gap? The study, which is unique in that it looks at levels of agreement between parents and their adult children on a range of financial topics, finds that:
- Adult children are far more likely to say their parents often worry about financial security, much more than their parents actually do (56 percent of adult children vs. 23 percent parents). However, perhaps parents aren't worrying as much as they should, since 70 percent indicate they don't know exactly how much money they will have to live on in retirement—up from 65 percent when the study was last conducted in 2012.
- Adult children significantly underestimate the value of their parents' estate by more than $300,000. This number more than doubled from just two years ago, when the estimate was off by more than $100,000 on average.
- There is major disagreement over who will care for a parent if they become ill, with nearly half of the adult children (43 percent) expecting they or a sibling will need to handle caregiving duties, whereas only a small percentage of parents (6 percent) expect this. (Note: click here for an infographic on the study results and why they matter.)
"These discussions aren't always easy, but there can be real emotional and financial consequences when they don’t happen or lack sufficient depth," said John Sweeney, executive vice president of Retirement and Investing Strategies at Fidelity. "It’s absolutely critical that families take the time and break down any barriers to sort through important matters related to retirement preparedness, caregiving responsibilities, estate planning and the tax implications of an inheritance. The alternative is putting these matters off until a crisis occurs, at which point the options may be limited and there could be unintended financial repercussions."
Even if conversations are taking place, how detailed are they?
Despite the confidence expressed by parents about their retirement readiness, research2 shows that many Americans are underprepared to live comfortably in retirement. Since 93 percent of parents identify "living a comfortable retirement" as the most important motivation to save, discussions with loved ones in advance could serve as a much-needed reality check, or at least a chance to ensure enough money has been set aside and invested to last 20 to 30 years or more in retirement. Yet, even if conversations are taking place, the level of depth is questionable, as the Intra-Family Generational Finance Study found that:
- 40 percent of parents indicate they have not had detailed conversations with family members about covering living expenses in retirement—and an additional 15 percent have not had any conversations at all.
- 43 percent of parents indicate they have not had detailed conversations with family members about healthcare and eldercare expenses, and an additional 20 percent have not had any conversations at all.
- Although parents are more likely to have discussed wills and estate planning with their children, even in this area, 31 percent have failed to have very detailed conversations and 10 percent have not had any conversations at all.
How to Build a Better Discussion
For those looking to initiate a family financial conversation of their own, Fidelity offers the following guidelines:
- Initiate family discussions earlier, and ask as many detailed questions as you can. On all subjects, the study shows that the earlier and the more detailed conversations are, the greater the sense of preparedness. For example, almost all (93 percent) parents who had detailed discussions with their children about wills and estate planning say it brought greater peace of mind; 73 percent said it would help their children's emotional state of mind, too.
- 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 their retirement.
- Have the right people talking about the right things, at the right time, in the right way. Advanced planning can help you define roles, determine what conversations to have, 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 is important to consider the personalities of each child, their proximity, their relationship with their parents, and other nuances that play into long-term decision making and financial planning.
- 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 you need—and revisit the plans you make at least annually, to make sure they still make sense. (Note: click here for an infographic that walks you through, step-by-step, how to organize productive family meetings.)
For additional information, Fidelity has launched on online series entitled: Special Report: Families and Money, which includes educational resources like "Family money talks: failure to launch" and "Five ways to protect what's yours," a list of documents to help prepare for the unexpected, such as naming beneficiaries, creating a will 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. In addition, "When Family Gathers – Lay the Groundwork for Open Communication" provides tips on how to engage with family members to begin these sensitive discussions.
About the Study
The Fidelity Intra-Family Generational Finance study was conducted online among U.S. parents and their adult children during the period of March 3 – April 9, 2014 by GfK Public Affairs and Corporate Communication, using GfK’s KnowledgePanel®. The total sample recruited for this study included 1,058 parents and 159 adult children. To qualify, parents had to be at least 55 years of age, have an adult child older than 30 and have investable assets of at least $100,000. Their children qualified if they were at least 30 years of age, had money saved in an IRA, 401(k) or other investment account. In addition, they must have at least $10,000 saved.
About Fidelity Investments
At Fidelity, our goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. We do this by focusing on a diverse set of customers: from 23 million people investing their own life savings, to 20,000 businesses needing help managing their employee benefit programs to 10,000 advisors and brokers needing technology solutions to invest their own clients' money. Privately held and with 40,000 employees around the world, Fidelity is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products.
As of May 31, 2014, the company held assets under administration of $4.8 trillion, including managed assets of $2.0 trillion; it is one of the largest mutual fund companies in the U.S. and the No. 1 provider of both workplace savings plans and Individual Retirement Accounts (IRAs). For more information about Fidelity Investments, visit www.fidelity.com.
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