Many of your Boomer clients think they have it made. They've put the kids through college, paid off the mortgage and squirreled away enough in their retirement plans to make as much not working as they did when they were employed.
However, they face a lurking problem that could be devastating, both emotionally and financially: caring for their parents in their old age. The costs associated with such care — many of them medical — are ignored or grossly underestimated by many a Boomer's long-term financial plan. As their advisors, you are the most qualified people to inform them early about the looming costs and to get them to take steps that will minimize the damage to their retirement dreams.
According to the National Council on the Aging, seven million Americans currently look after a person over age 55. Given that life expectancies continue to expand at unprecedented rates (government projections currently say that one-in-four senior citizens will reach 90 years of age), it's pretty clear that the eldercare issue will be increasingly important to the financial community.
What follows are some basic steps advisors can take to ensure that caring for parents and retiring comfortably do not become mutually exclusive tasks for their clients.
Step #1: Organize
The first step is finding out what the elderly parents have and what they need to get out of what they have. Be prepared for a high level of discomfort at this stage — for you and for the clients. Most parents avoid discussing money with their children, and this is doubly true for the generation that survived the Depression (many of whom would rather give their kids a minute-by-minute description of their honeymoon night than reveal their checkbook balances).
As an unrelated third party, advisors have the advantage of being able to broach formerly taboo financial subjects. The best way to do it is to complete a detailed financial plan, including copies of all statements and important documents. Once you have established the elder client's net worth, you should calculate future monthly income and expenses — both best-case and worst-case scenarios. These numbers will help you determine your actions in Step #3.
Step #2: Estate planning
If the elders have established a relationship with an estate lawyer, the advisor should organize a three-way meeting at which the advisor can present a “financial inventory” on the family's behalf. Such a meeting has benefits for both the family (in the form of reduced legal costs springing from the improved organization of the financial statements) and the advisor (who asserts his value to family while, perhaps, gaining a professional contact in the person of the estate lawyer).
If the family lacks an estate lawyer, the advisor can earn a favor from a local attorney by referring the family to him. Advisors lacking such a contact can search for legal specialists by geographic area via the “Lawyer Locator” at martindale.com.
Step #3: Investing
Here's where the rubber meets the road, so to speak. An advisor's goal should be to help the family increase income, cut taxes, reduce risk and simplify record-keeping. Here are some of the basic things an advisor can do:
For obvious reasons, an advisor would strive to capture the rights to manage all of a client family's accounts. This asset accumulation effort can be helped by the fact that consolidation simplifies an elder-caretaker's responsibilities. Make sure to attach electronic bill-payment capabilities to the account to reduce the likelihood of carpal-tunnel-like injuries that could result if the client is forced to write checks for each of the many bills that will come his way.
Certificates of Deposit
Ladder your client's CDs. Such a move eliminates the need to shop around at every CD maturity. Moreover, placing a six- or seven-figure portfolio in several different banks gives the client the best of both worlds: FDIC insurance on all the money while still having a consolidated statement of where the money is located.
Older clients typically reside in the lowest tax brackets, while Boomer children often sit in the highest. For this reason, it makes sense to begin withdrawing earnings from any annuities quickly — at least until the proceeds are being taxed at the middle levels. Careful, though: If there is a wide gap between the account value and the guaranteed minimum death benefit, it may be best to leave the money in the annuity and wait for the owner's death to generate a much larger dollar amount for the heirs.
Most older folks need some form of continuing care, but many are reluctant to sell their homes to pay for it. For those who are able to remain in their residences, advisors may want to suggest reverse mortgages. These well-regulated arrangements can be an unexpected source of income that carry the added benefit of letting a senior citizen retain his most-cherished asset. AARP provides an abundance of information on reverse mortgages at aarp.org/revmort.
In summary, asking clients about their older parents can bring an advisor new business and solidify existing relationships by relieving the anxiety felt by both generations. Further, the process can motivate Boomer clients to discuss how they plan to handle their twilight years, although judging by the popularity of Viagra and plastic surgery, they are even less likely to go quietly than their parents.
Writer's BIO: Kevin McKinley is a CFP and vice president of investments at a regional brokerage and author of Make Your Kid a Millionaire — 11 Easy Ways Anyone Can Secure a Child's Financial Future.
Reasons to Do it Now
Many clients wince at the prospect of getting involved in their parents' money matters, but here are some reasons in favor of it:
It is better to talk while the parents can still have input.
The presence of a financial manager may protect parents from con artists.
The older generation might be unexpectedly relieved at not having to handle its affairs.
A child who gets involved before a parent's mental faculties deteriorate can avoid messy guardianship battles.