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Instinctively, you may feel uncomfortable having a conversation with your parents about their finances - it highlights the fact that your parents are ageing and are mortal. It may also feel uncomfortable as they have always looked out for you and the roles need to reverse as they age.
However, by understanding their financial situation, goals and end-of-life wishes, you can support them so that they can live a fulfilled life right till the end.
An easy conversation ... or not?
If your parents spoke openly about money as you were growing up, it may be an easy conversation to start. But if they view money as a private matter, a more subtle approach may be needed:
1. Speak about your own financial goals and your plans for achieving them. Mention the discussions you have had with your financial planner around retirement and estate planning, and how this reminded you to ask you parents if they have had similar discussions and plans.
2. Offer to help with their finances if they seem to be battling to cope. Your parents may need help with things as simple as setting up debit orders to pay accounts, gathering documents for their tax return or setting up internet banking. This will give you insight into their financial situation and may also be welcomed by them.
3. Ask them to share their wisdom or give you advice. Open up the discussion by asking them to share money lessons they’ve learnt or by asking for advice about your own retirement planning.
4. Talk about someone else’s situation. There may a neighbour or relative whose lack of preparedness led to a difficult situation for their family. Talk about this and let the conversation flow to discuss the "what ifs" of life and what would happen if this situation arose in your family.
5. Start small. Consider talking to one parent, for example, speaking to your mom alone as a starting point. One parent may be more willing to broach difficult subjects with you, as the children, opening the door for further discussions with your other parent.
Leaving a legacy
Find out if they have a valid will, the executor’s details and when last their will was updated.
Be respectful and avoid insensitive questions such as details of bequests they have or will make.
Also ask whether they have a living will and any specific wishes around burial or cremation. This will make decisions much easier when the time arises.
It’s also handy to know what provision they have made to ensure that if one of them passes away, the surviving spouse will have money to live.
Strength in numbers
If your parents have a financial advisor, attorney or accountant, it can ease the burden, providing insight into their financial situation. They can also provide a professional, unbiased view when it comes to important decisions, and their expert advice will be worth its weight in gold.
Also involve any siblings or close family members who are keen to get involved, as open lines of communication can reduce possible misunderstandings and conflict in future.
Check the cash flow
Many elderly people outlive their money, so if you’re going to have to help out financially in future, it’s useful to be prepared.
Your parents have their pride but you need to get an understanding of their income and expenses and whether there’s enough money to cover emergencies.
If their financial situation is worse that you expected, raising this issue could bring a sense of relief to them.
You should also check if they qualify for a social old age grant or South African Social Security Agency (Sassa) pension, which can supplement their income. There are certain requirements, including a means test, that determine who qualifies. You can find more information here.
Power of attorney
If your parents are ill or frail, suggest that they sign a power or attorney, giving you the authority to handle things such as paying accounts and signing documents. You may need to sign specific documents to deal with their bank accounts and medical scheme.
Prevent any loose ends
Dealing with a death is stressful enough without having to search for bank account details, online passwords and other important documents such as property title deeds, vehicle registration papers or marriage or divorce certificates.
Encourage your parents to keep this all together in a file that can also include a signed copy of their will and a list of their assets and liabilities. Make sure you know where this file is located.
Medical costs
As your parents age, their medical expenses will increase. Find out which medical scheme they belong to, and read the fine print to understand the benefits.
Their contributions will increase each year, impacting on their cash flow.
Upgrading to a more comprehensive scheme may be advisable if they can afford it, but get advice from a qualified medical scheme consultant so you can compare the options on offer.
As their medical costs increase over time, they may need to cover any shortfalls in the cost of treatment. Suggest that they start a separate savings fund to cover these shortfalls in future and consider taking out gap cover.
Home is where the heart is
A rather difficult aspect to consider is where your parents will live as they age. Perhaps they have given it some thought but this needs a frank discussion, weighing up all the options, including proximity to whichever child will be the one primarily responsible for them.
They may want to stay in their home for as long as possible, or they may want to downsize to a smaller property, a retirement village, or they may even have visions of moving in with you.
All of these considerations have financial and medical implications as they age and must be carefully evaluated.
Longevity is our greatest enemy when it comes to maintaining our post-retirement lifestyle. The longer we live, the more difficult it becomes.
Understanding your parents’ financial situation will allow you to be pro-active in supporting them in their wishes, preventing any nasty surprises down the line, and allowing them to live the very best life they can, right till the end.
This article was first published on SmartAboutMoney.co.za, an initiative by the Association for Savings and Investment South Africa (ASISA).
