April 17, 2024

By Daniel Masuda Lehrman, CFP®, CSLP®

How to talk to aging parents about finances

As baby boomers enter the period of life when they need some form of care, you may find yourself in a position where, for the first time in your life, you’re starting to worry about your parents.  

It seems that every time you see them, they’re visibly older than the last time you saw them.  You want to help them with their finances, but you’re not sure where to start.  

Discussing finances with aging parents can be a sensitive topic, but it is a necessary conversation to have in order to help protect their financial assets. As your parents get older, they may need help managing their finances due to health issues or memory loss.  One way to broach the subject is to let your parents know that you want to help them and ensure that they are taken care of in the long run. It's important to ask your parents for their financial information so that you can assist them in making financial decisions and help prevent any potential scams. Another important aspect to consider is planning for senior care or assisted living if necessary. If your parents take ill or become incapacitated, you may need to make medical decisions on their behalf, which could involve managing their finances. It may also be beneficial to involve a financial adviser in the conversation to assist in creating a plan for their future. With open communication and support, you can help ensure that your retiree parents live longer comfortably and securely.

Here’s a few tips on what you can do to help:

Start the conversation early and make gradual changes

Starting the conversation early will help you understand their financial situation better and give you an idea of how involved you might need to be in the future.  

The first and most important thing to communicate is your intentions for having this conversation now.  

It might be a while before your parents need your help, but it's important to start discussing who will handle their affairs if they face any challenges and agree to gradually increase your support if and when it becomes necessary. 

For instance, if you're starting to take on the responsibility of paying bills, begin by doing it together. This gradual and sensitive approach gives both you and your parents time to adjust to the changes.


Take inventory and organize your aging parents finances

If you intend to help your aging parents with their finances, it’s important to sit down with them and take inventory of their finances.  This could mean collecting information on bank accounts, checkbooks, retirement accounts, annuities, credit cards, pension statements, tax returns, and more.  

  1. Make a list of your parents' income sources, investments, debts, properties, and valuable personal items.  Find important documents like deeds, property titles, keys to lockboxes, insurance cards, and life insurance policies.

  2. Create a document with your parents' personal information, such as their birthdays, Social Security numbers, driver's license numbers, Medicare numbers, and other identifying details.

  3. Compile a list of financial accounts, including account numbers, usernames, passwords, financial advisor contacts, and accountant contacts.  Keep this list in a secure place to prevent unauthorized access. 

  4. Find important estate planning documents, such as trusts, wills, financial and health care power of attorney documents, and advance directives. Consider using a digital vault to organize and securely store these documents along with insurance policies, property titles, passwords, and other financial paperwork. This way, you can securely access them when needed.


Simplify and automate your parents’ finances

Once you've got everything organized, it's recommended to simplify and automate your parents income sources, accounts, and billpay.   Here are some steps to make managing your parents' finances simpler:

  1. Consolidate checking and savings accounts into one financial institution.  There is rarely any need to have more than one checking account or savings account for personal use unless you are exceeding FDIC coverage limits.  Make your parents lives easier and help them consolidate their cash into one checking and one savings account.  Their checking account should receive income sources like Social Security, pension, and IRA distributions, while the savings account should hold 3-6 months of average spending for emergencies

  2. Consolidate IRA accounts at one financial institution:  In general, consolidating investment accounts into one financial institution makes things more transparent and simple, but it's especially helpful when it comes to IRAs and Required Minimum Distributions (RMDs).  Holding all Traditional, SEP, and Rollover IRAs in one place makes the annual calculation and distribution simpler and easier to manage. 

  3. Automate income sources:  Speaking of RMDs, make sure your parents’ financial institution is automatically calculating and distributing their RMD either monthly or annually to their checking or taxable brokerage account.  Make sure Social Security, pensions, annuities, and other sources of income are automatically setup to direct deposit into their checking account. 

  4. Automate bill payments: Set up automatic payments for monthly bills like mortgage or rent, car loans, and utility bills. Get electronic statements sent to you and opt your parents out of paper statements to avoid confusion. Make sure their financial institutions, pension providers, and insurers send statements to you.

  5. Review their annuity and life insurance policies.  Help your parents make important decisions such as whether to annuitize, surrender, exchange, or stop making payments on their policies.  Recruit a financial advisor for help when needed.  Many advisors will charge hourly rates for situations like this. 

  6. Keep finances separate: Avoid mixing your parents' finances with yours, even if you share a joint account. This could affect their eligibility for government benefits like Medicaid or cause issues with other family members.

Consider a Power of Attorney 

A power of attorney is a legal document that lets one person (the agent) make decisions on behalf of another person (the principal). There are different types of power of attorney, such as financial, medical, or general, and they can be tailored to specific situations.  They can be temporary, limited to certain matters, or comprehensive.

In many cases, a general durable power of attorney is the most suitable choice for financial caregivers because it takes effect immediately and remains valid even if the parents become unable to make decisions.  

As the appointed power of attorney, you'll have the authority to access your parents' financial accounts and make financial and legal decisions for them. To be valid, the power of attorney document must be created and signed by your parents while they are mentally competent. It's a good idea to consult with an attorney who specializes in elder law to ensure the document meets your needs.

It's important to note that some financial institutions may be hesitant to accept power of attorney documents. They may argue that the document is outdated if it was created several years ago or insist on using their own forms. However, in most states, financial institutions are required to recognize valid power of attorney documents that have been properly signed and notarized.

You may need to notify the appropriate government agencies about your POA status.  

For example, to manage Social Security benefits for your parents, you must apply with the Social Security Administration to become their representative payee. If your parents don’t already have a "my Social Security" account, you can create one on the SSA.gov website to access the representative payee portal.  

For Medicare, there is a form for appointing an authorized representative.  You can fill it out if your parents are unable to do so and you are their power of attorney or conservator.


Additional ways to protect your parents financial plan

  1. Gain inquiry access or limited authority:  Many financial institutions will grant you online access to either view or conduct certain transactions on behalf of your parents.  Inquiry access allows you to view account information and make inquiries, such as getting account balances, while limited authority allows you to make inquiries on the accounts, buy and sell securities, and see balances, but does not allow for withdrawals or changes in beneficiary. 

  2. Enable account alerts or duplicate statements:  Many banks and credit card companies offer transaction alerts, but they may only cover certain types of transactions.  Other services offer a more comprehensive monitoring of bank, credit card, and investment accounts, such as large withdrawals, unwanted donations, or gift card purchases often used by scammers.  Having your parents share duplicate statements or trade confirmations with you is a simple way of gaining a snapshot of their account activity.

  3. Sign them up for credit and identity monitoring:  Many companies offer credit monitoring, which keeps track of your parents' credit reports and alerts you to any changes, like new accounts being opened.  It can also monitor the dark web for any misuse of personal information and provides up to $1 million in identity theft insurance.

What can financial planners do to help your aging parents?

A financial planner can be an invaluable resource for aging parents in several ways:

Retirement Planning

A financial planner can help your parents assess their retirement goals, evaluate their current financial situation, and develop a plan to ensure they have enough savings to maintain their desired lifestyle during retirement.

Investment Management

As your parents age, their investment strategies may need to change to focus more on capital preservation and generating income rather than high growth.  A financial planner can help your parents adjust their investment portfolio accordingly to match their risk tolerance and financial goals.  They can also review their annuity and life insurance policies and help your parents make important decisions such as whether to annuitize, surrender, exchange, or stop making payments on their policies.  

Estate Planning

Planning for the distribution of assets after death becomes increasingly important as people age. A financial planner can work with your parents to create or update their estate plan, including wills, trusts, and powers of attorney, to ensure their wishes are carried out and minimize estate taxes.

Healthcare Costs

As your parents age, healthcare expenses may become a significant portion of their budget. A financial planner can help them plan for these costs, whether through insurance coverage, health savings accounts (HSAs), or other strategies.

Long-Term Care Planning

If your parents may need long-term care in the future, a financial planner can help them explore options for financing these expenses, such as long-term care insurance or setting aside funds in advance.

Tax Planning

A financial planner can help your parents minimize their tax liability through strategies such as RMD management,charitable giving, Social Security strategy, and retirement account distribution strategy.

Financial Advocacy

As your parents age, they may become more vulnerable to financial exploitation or mismanagement.  A financial planner can serve as an advocate, helping to monitor their finances, detect signs of fraud or abuse, and keep you in the loop so you can take steps to protect their assets.

Coordination with Other Professionals

A financial planner can work with your parents' other professional advisors, such as attorneys and accountants, to ensure a coordinated approach to their financial planning needs.

Overall, a financial planner can provide peace of mind for aging parents by helping them navigate the complexities of financial planning and retirement, allowing them to enjoy their golden years with confidence.


Okay, Boomer:  Let's talk about financial and estate planning

As the baby boomer generation ages, many Millennials are finding themselves facing the reality of caring for their aging parents for the first time. The concern about how to support their parents, who seem to be visibly aging with each passing day, is a common sentiment. 

Taking action early and gradually making changes can greatly ease the burden of managing your parents' finances. Initiating conversations about their financial situation and gradually implementing supportive measures, such as consolidating accounts and automating bill payments, can be immensely helpful. 

Additionally, exploring options for obtaining power of attorney and seeking assistance from a financial planner can further alleviate the challenges associated with caring for aging parents.  By taking proactive steps and leveraging available resources, Millennials can fulfill their role as financial caretakers with confidence and care.


About Daniel Masuda Lehrman

I am a Fee-Only Fiduciary and Founder of Masuda Lehrman Wealth LLC. Prior to starting my own firm, I was a Vice President Financial Consultant at Charles Schwab in their Downtown Honolulu office. I have worked in financial planning for 10 years at Vanguard, Fidelity, and Schwab. I'm a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) and Certified Student Loan Professional with an Economics degree from the University of Michigan.

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