In life and money, timing is often everything. And that’s particularly true when it comes to sensitive family discussions about retirement security, eldercare, and estate planning.
According to Fidelity’s latest Fidelity Investments’ biennial Family & Finance study,1 Approximately 9 in 10 parents and their children see the importance of having frank conversations about a number of issues affecting parents when they retire. 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.
“These discussions aren’t always easy, but there can be real emotional and financial consequences when they don’t happen or lack sufficient depth,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity. “It’s absolutely critical that families come together to sort through important matters related to such things as retirement preparedness, caregiving responsibilities, estate planning, and the tax implications of an inheritance.”
The study's key finding:
How wide is the gap between parents and their adult children? The Study's Key Finding:
- 93% of parents surveyed believe it is unacceptable to become financially dependent on their children, while only 30% of their adult children feel the same way.
- 4 in 10 families disagree on the roles children will play as parents age, in terms of who will be their caregiver, who will be the executor of the estate and who will manage the finances.
- 67% of families disagree about the appropriate time to initiate a conversation about their parent's finances—many hold off until their parents approach or are in retirement.
Family discussions between parents and adult children could serve as a much-needed reality check. Yet, even when conversations are taking place, the survey suggests that the level of depth may not be sufficient. Consider:
- Long-term care: 43% of parents indicate they have not had detailed conversations with family members about long-term care and eldercare—and an additional 23% have not had any conversations at all. Furthermore, while 72% of children think their parents should be tackling the issue of long-term care/eldercare, only 41% of their parents say they actually are.
- Will and estate planning: While parents are more likely to believe they've had detailed conversations with their children on this subject (69%), 52% of children say they haven't.
- Living expenses in retirement: More than a third (34%) of parents indicate they have not had detailed conversations with family members about covering their living expenses in retirement --and an additional 16% have not had any conversations on the topic at all.
- Location of important documents: 3 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.
When’s the right time to talk?
“Ideally, detailed conversations on these matters should take place well before retirement, to ensure that families are adequately prepared,” says Sweeney. “Although it’s understandable that parents may have sensitivities and want to delay discussing personal financial matters, the best strategy is to set these concerns aside and have frank discussions sooner rather than later, as it’s very possible children will have to make some financial and health care decisions for parents later in life. This will give you the time needed to anticipate, plan, and make smarter, more informed decisions.”
How to build a better discussion
Here are some guidelines to get a family financial conversation going:
- Initiate family discussions earlier. Ask as many detailed questions as you can. On all subjects, the study found that the earlier and the more detailed the conversations are, the greater the sense of preparedness.
- Follow the “voice not vote” rule. When it comes to finances, it’s not a democracy. While all family members should have a role in the planning process, the ultimate decisions about the parents’ finances, health care, and eldercare should be made by the parents themselves.
- Make sure the right people are talking about the right things. And try to make sure they are talking at the right times, in the right way. Advance planning can help you define roles, determine what conversations to have, and choose when and how different people will be involved.
- Commit to follow-up conversations to keep the dialogue going. Keep the momentum going and schedule as many get-togethers as you need, and revisit plans at least annually to make sure they still make sense.
To help break the ice and get the conversation started, consider our PREP plan below:
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917