A perverse game gets played in my family. For lack of a formal name, let's call it the Percentage Adjustment Game. In moments my younger sister or I do something to jokingly tick off my Dad (this could be as simple as the time my sister saw Friday Night Lights and said, "oh, it's like rugby") he will respond with, "You just lost X percent" or "Your sister just got Y percent." He's referring, of course, to the splitting of our hypothetical inheritance.
The Percentage Adjustment Game is purely grounded in fiction for us as my sister and I both live under the assumption we won't receive an inheritance. That isn't to say our parents are gallivanting around the world blowing money we would otherwise inherit, but rather because we both plan to forge our own paths to wealth and don't want to plot our futures based on a potential windfall from Mom and Dad.
The advantage, however, of growing up with death, money and inheritance being a point of humor is that our parents managed to remove the taboo out of the conversation. It's not unheard of for me to casually be able to bring up long-term care insurance over dinner or ask if my parents ever plan to live with my sister or me in their twilight years.
When I mention the Percentage Adjustment Game to my fellow millennial friends, I'm often met with looks of shock and horror. It seems my peers don't talk about their parents demise casually around the dinner table. But my jaw drops to learn that many of my friends have absolutely no idea if their parents are prepared for retirement or financially set for their final years.
You deserve to know details about your parents' financial futures, because it's imperative to begin budgeting and saving early if you'll be handling the costs of a parent's medical care, or retirement community or you simply need space in your own home to ensure your parent (or parents) feels welcomed and comfortable.
This may be even more important for millennials whose parents raided their retirement funds to pay for college. There are loans to pay for college, but those same loans don't exist for retirement.
What you should know from your parents
This conversation is uncomfortable. Parents don't want to talk about a time they'd be unable to feed themselves or handle their own bodily functions, and you don't want to seem churlish or unloving by asking, "Hey, am I going to have to take care of you in 20 years?"
There are certainly more tactful ways to open a dialogue with your parents and the conversation doesn't need to all happen at once.
The goal should be to find out if your parents have:
- Long-term care insurance: Policies vary, but long-term care insurance can help cover the costs of helping those with a chronic illness or disability that will need help ranging from daily activities like dressing and eating to more skilled care like physical therapy. This insurance has become exorbitantly expensive and may be cost-prohibitive for many families unless they purchased a policy early.
- Retirement funds: Parents may be wary to share how much is in a 401(k) or IRA, but knowing if your parents are funding one is a good start. Your parents may also be fortunate enough to have a pension, which could mean steady income for the rest of their lives.
- A paid-off home: A mortgage free home is a major asset not only to the balance sheet, but it also provides your parents with peace of mind. They have a place to live with no strings attached and selling the home to move in with you or to a retirement community can provide funds for other needs.
- Debt: Learning if your parents have any lingering debt such as medical bills, student loan payments or credit card debt gives you some insight about whether or not they'll be able to retire or be financially stable if and when working is no longer an option.
- An updated will: Make sure each parent is financially protected in the event of a death. For example, is your Mom set as the beneficiary on your Dad's accounts and vice versa? Do both parents know all the login information to bank and brokerage accounts? Having a recent will in place is an important financial practice during all stages of life and can help simplify necessary actions during times of grief.
How this can impact your future plans
Unexpected expenses can destroy the best-laid budgets and drain emergency funds. Taking care of a parent could have the same financial consequences as having a child, which is why it's best to understand early if your parents will be relying on you in 10, 20, 30 years. Just like couples that save up before trying to start a family, you can begin investing and saving with the idea of putting the money aside to help your parents. This simple practice can help keep both of you out of debt.
Should your parents be open to having this conversation it's wise of you to ensure the sibling taking primary responsibility will have power of attorney. This will enable medical and financial decisions to be made on behalf of the parent if he or she is incapacitated. It can also protect your parents' financial affairs so you have access to their funds and can ensure the money is being used properly. Poor financial choices can be an early indicator of Alzheimer's, so power of attorney could allow for you to protect a parent from him or herself.
Your parents might have been saving for retirement since long before you were born. Maybe their retirement accounts funded your college education. Regardless, it's important to be open and honest about expectations in the future. If you're unwilling, or unable, to take in a parent, then you should consider saving to help subsidized the cost of a retirement community. If your parents are financially fit for retirement, then you should ponder how you could provide emotional support.
It isn't just about the bottom line
Yes, you should absolutely consider the financial implications of being on your parents' retirement plan. Not only can you start planning early, but it also offsets the chance of being blindsided when a parent becomes unable to care for himself. But ultimately, it's about more than just money. It's about providing the best, possible life for the people that raised you. Being kind, understanding, available and emotionally supportive cannot be translated into dollars and cents.