What will you do if your dad calls and asks you to help him with the mortgage payment? What if your mother told you that she could not cover the grocery bill?
The possibility isn’t all that far-fetched. According to Pew Research, more than 20% of children between the ages of 40 and 59 are helping to provide basic financial support to their elderly parents.
Gen Xers, in particular, are caught in the middle between providing for their own children and helping out Mom and Dad. The “sandwich generation,” as they’re called, is being squeezed by commitments from both ends…so much so that their own financial security and retirement planning often suffers.
And it’s not just Gen Xers; Millennials too are feeling the pressure.
Even though some parents are still providing their Millennial children with financial help, the tables are starting to turn as Millennials are beginning to face the reality that they may need to help their parents make ends meet.
While Country Financial reports that slightly more than half of Millennials receive some help from parents, a TD Ameritrade study estimates that one in five Millennials are helping their parents.
And the dollar amounts aren’t trivial. Millennials are paying an average $18,000 annually to help their parents cover basics like food and housing.
The result? A third of Millennials believe that their own financial situation will not be as secure as that of their parents. Faced with growing financial responsibilities, adult children often put their own lives on hold. They are delaying getting married. Delaying starting a family. Delaying buying a home. Delaying their retirement savings. And they’ll probably even have to delay their own retirement.
What Do You Do When Mom and Dad Ask for Financial Help?
After raising their families, it isn’t easy for most parents to ask for help. And yet, according to Government Accounting Office figures, as many as a third of people over the age of 55 have little or no retirement savings.
The reasons are myriad. On one hand, not everyone had enough time to recover and rebuild their retirement nest egg after the 2007/2008 financial crisis decimated IRA and 401(k) funds. On the other hand, costly medical emergencies, unexpected layoffs, fewer job opportunities and retirement plans that haven’t kept pace with inflation or lifespans have parents outliving their savings. Suddenly the money runs out, and they can’t make ends meet on their pension or Social Security.
Some seniors find themselves back in the workforce, living paycheck to paycheck for as long they can work.
When the request comes and your parents admit they need your help, you’ll probably want to help. Your challenge—and number one goal—needs to be to find a way to provide financial assistance without putting your own financial plans at risk.
Falling short of meeting your own retirement needs will only perpetuate the cycle and put your children on the hook to help care for you.
Before you panic, here are 21 strategies to help you contribute to your parents’ financial security without going broke in the process.
1. Look At All Your Options
When your parents call for help, your first reaction shouldn’t be to reach for your checkbook. Before making a financial commitment, look at all your options. Are there ways to mitigate your parents’ situation and reduce their expenses?
Take the time to determine what they need then create a sensible plan for 1) managing their savings and investments, 2) cutting back wasteful spending and 3) finding ways to make up any shortfall.
2. Start By Cleaning Up Debts
Debt is one of the worst expenses to be carrying. Interest can kill any hope of getting on a solid financial footing. A good first step is to identify all outstanding debts, loan payments and mortgages—both your parents’ and your own. Prioritize by interest rate and start paying them down—those with the highest interest first.
3. Watch for Signs that Financial Trouble Lies Ahead
If you can see what’s coming, you may have an opportunity to make long-term plans. The earlier you can address a financial problem, the more options you have for a satisfactory solution.
Once you see the looming storm clouds, stay on top of the situation. You can’t ignore the problem and hope for the best. Keep an eye on where your parents are spending their money.
4. Help Your Parents Create a Financial Plan
Creating a plan and sticking to it is critical. Arrange for your parents to have a free consultation with a financial advisor. If you think that an advisor can help them structure even a modest plan, offer to pay. Find a firm that offers hourly services and pay for a financial health check and a formal financial plan that you and your parents can implement.
5. Don’t Shrink Away From Having a Serious Financial Conversation
Your parents’ financial security is at stake. This is no time to feel guilty that you’re treading on toes or that your parents aren’t strong enough to have a candid discussion. Skirting the issues or trying to throw money at the problem isn’t a viable solution either.
At the same time, remember that this is not a comfortable conversation for your parents. The parent-child dynamics are likely to change. Be understanding but firm. Talk about their spending habits and what they can do to live within their budget. Be honest, and again explore all options.
You may have to take greater control in the future so discuss setting up power of attorney.
One thing that can make this easier and keep emotions to a minimum is to begin talking before there’s a serious problem. Recognize that you are working together to find the best all-around solution. It’s not about taking away your parents’ independence.
6. Look to Your Own Financial Needs Before Making a Commitment
If necessary, sit down with a financial advisor and draw up a financial plan that factors in both your long-term needs and what you are capable of doing to help your parents. Don’t go into debt to meet your parents’ needs, and avoid co-signing commercial loans that leave you responsible for repayment.
7. Start Early to Prepare Your Own Financial Plan
If you suspect that you may need to help your parents down the road, set up your own retirement planning early. Sock away and invest as much as possible so you have years of compounding interest to help protect your future needs.
8. Don’t Be Shy About Setting Conditions and Limitations on Spending
If you’re going to be making regular payments to help your parents, you have a right to say how the money will be spent. Once you’re involved in helping them, you can help them set a budget and even earmark your money go to essential living expenses.
9. Make the Hard Lifestyle Decisions
As tough as this may be, making the hard decisions—including selling your parents’ home and downsizing their living arrangements—may significantly reduce the amount of money you have to payout each month.
Should they rent an apartment? Is there low-income senior housing available? Does it make sense for your parents to relocated to a part of the country where living expenses are lower, weather is temperate and utility costs will be more affordable?
10. Don’t Expect Any Personal Loans to be Repaid
Be realistic about the money you give your parents. You may call it a loan, but in all likelihood that money will not be repaid.
11. Delay, if Possible, Social Security Benefits
When money starts to get tight, many seniors decide to start collecting Social Security. Best get what you can while it’s still an option. Right?
Not necessarily. If you can see future problems on the horizon, talk with you parents about ways they might avoid taking Social Security—such as with a part-time job. If they can hold out until age 70, they could be entitled to 132% of their monthly payment.
12. Arrange for a Long-Term Care Policy…Immediately
It’s estimated that 70% of adults turning 65 will require some form of long-term care, and 20% may need that care for five years or longer. Even if you think your parents will be financially secure, consider the benefits of a long-term care insurance policy.
Medicare and health insurance policies are not designed to cover long-term care. While Medicaid may be a partial solution, only individuals with virtually no income may qualify.
13. Keep Every Policy Current
If your parents have life insurance, long-term care, healthcare and/or Medicare supplemental insurance, make sure you know about all their policies and that the premiums are up to date. You don’t want to make emergency medical payments out of pocket.
14. Look Into Financial Assistance Programs
Your parents may be eligible for financial assistance programs. In addition to Medicare, Social Security and Medicaid, there are government programs that can help, such as the Supplemental Nutrition Assistance Program (SNAP).
Check out AARP’s guide to public benefits. And the Department of Veterans Affairs has a program to help vets who cannot afford caregiver assistance.
15. Not All Your Help Has to Be Direct Payments
There are other ways you can relieve your parents’ financial burden. Take over home repair. Consider adding an in-law apartment onto your home.
Instead of just handing over money, make arrangements to pay one or more of their bills directly. And be creative with practical holiday and birthday gifts. Give your parents a gift card or take them grocery shopping.
16. Set Up a Private Reverse Mortgage
If your parents have enough equity in their home, offer a private reverse mortgage as a way to make a secured loan. Whether you give them a lump sum, monthly payments or a line of credit, the loan will be repaid when the home is sold after their deaths. Not only does this become a potential investment opportunity for you, but you avoid the costs associated with a commercial loan.
17. Consider Income-Only Strategies
If you need your parents to qualify for Medicaid, keep their assets within the allowable limits. This probably rules out a reverse mortgage or personal loan. However, you could consider creating an income-only trust or a Medicaid annuity. While your parents must qualify for a Medicaid annuity, they could receive more income than a trust would allow. The biggest downside with a Medicaid annuity is that the principal does not go to the heirs after a parent dies.
18. Have an Honest Conversation with Your Spouse or Partner
No matter what you can or want to do for your parents, you cannot act alone. Don’t try slipping your parents money behind your spouse or partner’s back. It isn’t fair and could lead to anger and resentment.
Discuss what needs to be done for both sets of parents, and how much you can afford to pay out of pocket.
19. Protect Parents Against Financial Scams
The danger is real. One in 18 seniors with full mental faculties are subjected to scams, and the number increases when you factor in seniors with dementia or those living in a senior care facility.
Stay current with the types of fraud and scams often perpetrated against seniors. Review the National Council on Aging checklist, which lists healthcare and prescription frauds to telemarketing scams and attempts to target recent widows and widowers with phony funeral expenses.
If you have a parent in an assisted living facility or nursing home, watch that attendants don’t pretend to help with finances and check writing and end up stealing for themselves.
20. Share the Burden with Your Siblings
Meeting parents’ needs should be a team effort. While one may have the means to take on more of the out-of-pocket expenses, other siblings need to step up in different ways. One may be the primary caregiver. Another may chauffeur them to the supermarket and medical appointments.
Perhaps everyone could take over payment of one bill. The important thing is that everyone contribute to the best of their ability and do the little things, like inviting parents over for dinner.
21. Meet Your Own Financial Needs
According to TD Ameritrade, many Millennials helping their parents are carrying an average personal debt load of $63,000 in mortgage payments, student loads and credit card debt. So you need to find relief wherever possible. For example, take advantage of any caregiver tax deductions, and talk with a financial professional about declaring your parents dependents.
It’s only right that you give back to your parents with love and gratitude for all they’ve done for you. Just don’t over-extend yourself or destroy your own financial future in the process. That’s not the legacy your parents want to for you.