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Family money talks: failure to launch

Fidelity study finds parents and adult children at odds on when to talk about finances.

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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 Intra-Family Generational Finance study,1 three-fourths of parents and their adult children agree it’s important to have frank conversations on such topics, but almost two-thirds (64%) can’t agree on when. 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.

“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.”

How wide is the gap between parents and their adult children? The study finds that:

  • Adult children are far more likely to say their parents often worry about financial security than their parents actually do (56% of adult children vs. 23% parents).
  • When it comes to inheritance and estate planning, adult children significantly underestimate their parents' own estimate of the value of their estate—by more than $300,000, more than double what it was 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 who becomes ill. Nearly half of the adult children (43%) expect to handle caregiving duties, whereas only a small percentage of parents (6%) expect this to be the case.

Cause for concern

Despite the confidence expressed by parents about retirement readiness, numerous reports, including Fidelity’s recent Retirement Savings Assessment,2 suggest many Americans are underprepared to live comfortably in retirement. Indeed, our intra-family study found that 70% of parents don’t know exactly how much money they will have to live on in retirement, up from 65% when the study was last conducted in 2012.

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:

  • 40% of parents reported they did not have detailed conversations with family members about covering living expenses in retirement; 15% have not had any conversations at all.
  • 43% said they didn’t have detailed discussions about health care and eldercare expenses; 20% haven’t talked at all.
  • Although parents are more likely to have discussed wills and estate planning with their children, 31% failed to have detailed conversations; 10% have not had any.

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:

Learn more

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1. 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 & Corporate Communications 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 and had money saved in an IRA, 401(k), or other investment account. In addition, they must have at least $10,000 saved.
2. SOURCE: The Retirement Savings Assessment (RSA) was the result of a national online survey of 2,265 working households earning at least $20,000 annually, with respondents age 25 and older from June through October 2013. Data collection was completed by GfK Public Affairs & Corporate Communications using GfK’s KnowledgePanel®, a nationally representative online panel, which is not affiliated with Fidelity Investments.
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Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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