Are Your Parents in Financial Trouble? It’s More Common Than Most of Us Realize
Do your retired parents have trouble making ends meet? If so, they’re not alone. I recently brought up financial trouble in a private group of middle-aged adults online and immediately received responses. “I feel like this is a dirty little secret that no one talks about,” one woman said. People in the group shared their own stories of helping parents cope with bankruptcy, debt and home foreclosure.
Because it doesn’t get talked about much, adult children can feel isolated when helping their parents deal with financial problems. But it’s common, and the more information your family has, the better you can weather any money trouble your parents encounter during their retirement. In this article, we’ll look at why some older adults have money trouble, what challenges you may face in helping them and tips from adult children who’ve been in this situation.
Financial Trouble in Seniors
How common are financial struggles for older Americans? In December 2017, the Washington Post looked at a group of about 1,000 retired workers who lost pension benefits and had to go back to work. The paper found that 1 in 7 of those retirees filed for bankruptcy and/or had liens placed on their property for unpaid bills.
The problem, experts say, is a lack of retirement savings coupled with company pension programs that were eliminated or scaled back after these people had already finished their careers, made worse by rising healthcare costs.
Why Are So Many Older Adults Having Financial Problems?
As I listened to people talk about their parents’ situations, a few root causes came up over and over: a decline in financial decision-making abilities, loss of traditional pensions, not enough savings and rising expenses. Often, families face a combination of these issues.
The Washington Post story uncovered many companies who no longer offer traditional pensions. In place of pensions, many companies switched to 401(k) programs, but only 32% of American workers even have such an account. Of those who do, most aren’t saving anywhere near enough for retirement. The Motley Fool found that even with an average 401(k) balance of $200,000 among people age 65 an older, that nest egg would only deliver $8,000 in income per year over a 25-year retirement.
Why are even diligent savers running into trouble in their retirement years? There are many reasons. Healthcare costs more now than it did a generation ago, and so does college, which means many grandparents are chipping in to help their grandkids get a degree — and that means less money going toward retirement savings. But experts say the main reasons why it’s harder to finance a traditional retirement are an increase in longevity and lower yields on investments.
Pimco investment solutions head James Moore put it plainly in an opinion piece for MarketWatch: “It’s twice as expensive to retire today as it was 25 years ago.”
There’s one more factor that can complicate older adults’ finances: a decline in decision-making skills. One woman I heard from said her mother had always been careful with her funds until vascular dementia set in. Then she started spending so far beyond her means that she risked eviction. Even without dementia, most of us lose our financial edge as we age. According to a report on financial planning for cognitive decline by State Street Global Advisors:
“Financial decision-making peaks for most people in their early-to-mid 50s. Investing skills can start to decline sharply in one’s 60s and 70s. Regrettably, even as financial literacy and numeracy scores start to go down, self-assessment remains intact. The result is a relative increase in overconfidence.”
This change in decision-making ability is what makes seniors an appealing target for scammers. It also leaves older adults more vulnerable to making impulsive choices with their money at the point in their lives when they need sound finances the most.
What Can You Expect When Your Parents Have Money Troubles?
Money is an emotional topic for many families and your parents may always see you as their child, not necessarily a decision-making peer. Your parents may feel that their spending and saving choices are their business alone, or they may not accept others’ observations that their decision-making skill has declined. Your parents may also feel afraid and vulnerable, understandably so.
Adult children’s feelings about parental money problems can be complicated. Because most people don’t announce their money problems, some of the adult children I heard from were stunned by the news that their parents had run out of money and needed help. Others felt helpless as their parents outlived their nest eggs, or even angry as they watched parents spend beyond their means. Some adult children said they were deeply grateful to their parents for being careful planners and savers.
The point is, there’s no right or wrong way to feel about your parents’ financial situation, but there are ways you can try to help and options you can explore, while also maintaining your financial responsibilities to yourself and family.
Ways to Talk to Parents About Finances
It’s one thing to understand that your parents need help and that everyone’s feelings will factor into how that help is offered and received. It’s another thing altogether to actually have those discussions with your dad and mom.
To get some insight, I spoke with a woman I know who has been supporting her retired parents for the past eight years. Amy is an engineer with a tech company in the Austin area, and she manages the delicate balance of keeping a roof over her parents’ heads while helping them maintain their personal dignity and parental authority. She generously offered to share what she’s learned:
“Try to catch your parents when they’re in a good mood” to talk about money issues.
No one responds well to a stressful topic when they’re sad or anxious. Present your financial concerns as things you’re thinking about doing for yourself. For example, if you’re concerned that your folks have no plan for what happens if they can no longer make their own financial decisions and you want them to consider setting up a power of attorney, “you might say, hey, Mom, I’m planning this for myself, do you think it’s something you’d like to do, too?” Expect some pushback and “understand what your triggers are,” Amy advised. For some parents, accepting help from their children sparks feelings of embarrassment and “there may be some backlash” as they act out in ways that re-establish the interaction pattern the two of you had when you were younger. Try to avoid taking the bait and stay focused on the problem you’re trying to solve.
Ways to Help Your Parents When They’re in Financial Trouble
You can try some or all of these approaches, depending on your parents’ situation:
- Ask your family to help. Amy, the engineer, is able to cover the mortgage payments on the home she bought for her dad and mom so they can focus on paying down their debts. “I make a good income, I’m single, and I don’t have children. My parents took care of me and I can do this for them.” If your parents need more financial help than you can provide, talk to other family members to see if they can contribute a set amount each month, too.
- Consider selling the home. If your parents are at risk of foreclosure, it’s usually better to sell rather than default. Foreclosure can make it hard to buy or rent a new place. Talk to a Senior Real Estate Specialist about your parents’ options.
- Explore the option of bankruptcy. This is not an easy choice but can reduce your parents’ overall stress. A woman who helped her parents file said the situation was difficult for her parents emotionally, but “the relief my mother felt at not having to dread mail or phone calls was enormous.” Start by talking to your parents, their financial advisor and attorney, and a reputable credit counseling agency to weigh their options.
- Help your parents apply for assistance. If your parents have spent all of their savings, they are likely eligible for Medicaid. If either of your parents served in the military during a time of war and they have a low income now, they may qualify for veteran or spouse benefits from the VA’s Aid & Attendance program.
- Help your parents cut expenses. Moving to a smaller home or moving in with you could save your parents thousands of dollars a year. Even if your parents’ home is paid for, it may be cheaper to move to assisted living than to pay for in-home care and the taxes, insurance, and maintenance on their home. Your parents may be able to cut other expenses, too, like cable plans, subscriptions, and memberships they no longer use.
- Help your parents earn some income. If it’s possible for your parents to take on a part-time job or work from home, as Amy’s mother does, work can bring in more money, soothe your parent’s pride and help strengthen their social ties.
- Plan before there’s a bigger problem. In the State Street Global Advisors report, head of practice management Brie Williams recommended that families and financial advisors work with clients as early as possible (ideally, in their mid-50s) to create a plan to handle any changes in decision-making skills that may arise later on.
- Try negotiating with your parents’ creditors. If your parents agree, you can help them contact their creditors and explain their situation. You may be able to work out a payment plan or get some of the debt forgiven. If so, try to get those agreements in writing and remember that forgiven debt may be considered taxable income by the IRS.
However you help your parents with money, Amy and other adult children I spoke with recommended paying your parents’ expenses directly rather than giving them cash so you can be sure the bills are paid on time. That’s especially wise advice for those whose parents have documented cognitive decline or a history of poor spending choices. Amy also said that, based on her parents’ history of financial difficulties, she decided to buy the house for them in her own name, rather than co-sign a loan and risk liability if they defaulted. Whatever you to do help your parents make it during their retirement years, “you have to protect yourself financially, too.”
Helping your parents pay the bills can be a strain, but it can also be an opportunity to strengthen your relationship with them and pay them back for the help they gave you when you were growing up. It can also help you see what you’ll need to plan for and discuss with your own kids, so that your family can be better prepared from one generation to the next.