Three ways to help aging parents with their finances

Jason Stipp: I'm Jason Stipp for Morningstar. We know many of our Morningstar.com readers are busy managing their own retirements, but we also know a good portion are also helping their parents in their retirement plans. Here to offer some pointers for that is Morningstar's Christine Benz, our director of personal finance.

Christine, thanks for joining me.

Christine Benz: Jason, great to be here.

Stipp: You have some specific tips for helping parents in retirement and their plans, but first you also had some general thoughts on this, which can be a delicate balance. But you say the first thing is that to help somebody else with their plan you want to make sure that your plan is in order.

Benz: That's right. I think the best way to help your parents gain confidence in you as a helper is to show that you have your own financial act together. So, you certainly want to be in good shape in terms of all your bills and your investment program. And I think probably the best way that this sort of collaboration unfolds is if you start sharing with your parents what you are doing with your investment program, what you are doing with your college-savings program, and your retirement plan. I think when your parents start to gain confidence that you know what you're doing, he or she may be more comfortable delegating some of these responsibilities to you over time if that, in fact, is necessary.

Stipp: And we do know that financial matters can be a touchy subject for a lot of families. So, you say the second thing to keep in mind, generally, is moving slowly when you can move slowly because that also helps ease into the process.

Benz: Absolutely. Fidelity had some terrific research about this back in 2014 where they looked at family conversations about money--these intergenerational conversations about money. What they found is that they're not happening. And if they are happening, they're happening in a very superficial way.

So, people aren't having these conversations. Many families aren't comfortable about discussing money. So, it is important to move in slowly, just maybe start giving your parents a comfort level in you and your abilities, and then move in from there. You won't be able to get all of the information you need with one conversation. This is the sort of thing that will probably unfold over a period of months or years.

Stipp: And in some cases, your parents may not need help in some areas. They may be doing just fine.

Benz: It's a delicate balance. I think if you are to talk to many adult children of aging parents, they are threading a needle where you are watching their abilities in terms of managing their own financial affairs and you don't want to step in preemptively if you feel like they are doing OK with these things, because it does help keep them sharp in terms of managing their own finances. So, you do want to watch how they are doing, keep tabs on how they seem to be managing, before you take any responsibilities away from them.

Stipp: But there are a few signs that you might need to move more urgently.

Benz: Right. Certainly, if you are seeing signs of mental decline in a parent, one of the first areas in which mental decline might manifest itself might be financial matters, which can be complicated. So, if you have seen signs of some decline, maybe there has been an important bill that has been missed in the past, that's a good reason to step in and try to see if you can help a little more preemptively.

The same would be true if you have a single parent. Perhaps the spouse has already passed away, or maybe your parents are divorced. If that single parent is really managing his or her own finances by themselves, I think you want to make sure that that person has at least some sort of backup program in place. That might be an area where you can really add a lot of help.

Stipp: If they are also working with a financial advisor, it can help if you make a relationship with that advisor yourself--introduce yourself to the advisor and get to know the program they're on.

Benz: Right. See if your parent is comfortable with this. See if you can join them on meetings with financial advisors, accountants, estate-planning attorneys. This can help you build up a comfort level with that individual; you want to make sure that if your parents do have financial helpers, that they are vetted, that you are comfortable with those people. You may be dealing with those people over a period of time. So, it's great to form those relationships preemptively before your parent passes away.

Stipp: So, assuming that you have arranged with your parents that you will be stepping in to help, you have some specific tips on ways you can really add some value and make sure that things continue to go smoothly. The first one is helping parents with day-to-day financial management. What are some ways that you can step in and really help them out there?

Benz: Well, I think one of the key ways is you can help them get organized. I think one of the signals that your parent might need financial help is if you are seeing that all the bills are jumbled and disorganized. You can help there, in terms of getting things organized. You can help your parent if he or she expresses a need with this. You can help them automate some of their bill paying, perhaps switch on online bill paying, show them how to do that if they do want to delegate more of those tasks to you or if they need more help in this area. That's one place to help.

You can also help them automate any income that's coming into the household. So, instead of having to go to the bank and cash those checks that are coming from the financial accounts, you can actually have those direct-deposited. Those could be a few key areas just to ease that bill paying--ease that day-to-day income management.

Stipp: Certainly, those things can help anyone keep on top of things, but especially important here maybe. Investment planning is a second area where you can help, and obviously it gets more complicated as you get into investment planning. So, how do you start to add some value there for your parents?

Benz: I think, first, just getting a sense of what types of investments you have and what's your overall strategy for extracting income from your portfolio that you need for your living expenses. Getting some sense of where your parents hold their assets, what types of assets they have, and also helping them look at the sustainability of any income that they are drawing from their portfolios. If your parents are comfortable sharing this information with you, making sure that any withdrawals that they are taking from their portfolios are, in fact, sustainable.

Stipp: And there may be some cases where you might recommend a change in strategy perhaps?

Benz: There may be cases. If, perhaps, your parent doesn't have adequate liquidity in the portfolio--maybe they're just relying strictly on dividends to fund their cash flows--you might suggest a little more balance in the portfolio to deliver some liquidity for those cash flows. That might be one idea. But here, again, it's probably an area, especially if your parent has been very much in charge of his or her finances for a long period of time, you'd want to move in gradually. Maybe a good way to start this discussion is just to swap strategies, discuss different approaches. If you are someone in your 50s and 60s, chances are you've got your own ideas about what your retirement plan will look like. You can kind of compare and contrast ideas and maybe gain some comfort level with that.

Stipp: And there is something called a "master directory" that can be really helpful, and that's just aggregating all of this account information in one place.

Benz: That's right. We've got a template for a master directory on Morningstar.com. The basic idea is that you are going to lay out all of your investment accounts--where you hold them, who you deal with, passwords, and so forth. So, this is sensitive information. You want to coach your parent on making such a directory and also keeping it in a safe place--either a safety deposit box or on some sort of password-protected file on your computer. And it's a good idea if you're helping your parent do this to do one yourself at the same time because this is something that we all need.

Stipp: Third place where you can help out is estate planning, and that can also get pretty complicated. But the first thing is that there are some basics that everyone needs to have. You want to make sure that your parents have those in place as well.

Benz: That's right. It's not uncommon, even if your parents have done some estate planning over the years, that they may not have revisited this information in many years. So, at a minimum, you want to make sure that your parents have a will; you want to make sure that they have a living will; and also, that they have named powers of attorney for health care as well as financial matters. Those are the biggies that you'd want to see in place.

Additionally, I think it's great, especially if you have quite elderly parents, to have discussions about care if they become incapacitated, if they're unable to care for themselves. What are their preferences? Do they want to remain at home at all costs or would they be OK with moving off-site? So, gauging attitudes toward care in case of incapacitation or some sort of disability. Also, gauging attitudes toward end-of-life care. And here--I've recommended this before, Jason--there's a project in place called TheConversationProject.org. You can go and see some information about engaging your parents in a discussion about end-of-life care. There's some really great work being done in this area. I think it's valuable for us all to have this sort of conversation with our elderly parents.

Stipp: It's good to have resources for these very sensitive and difficult conversations, often. And lastly, you say it's good to talk about their feelings toward inheritance and how they want transfer of wealth to happen afterward.

Benz: That's right. I think there's a lot of potential for miscommunication here. There was recently a study that looked at the communication that families have on this front. And surprisingly, perhaps, the study revealed that many parents do want to give their children some sort of inheritance, but the children aren't necessarily expecting anything. So, there seems to be some miscommunication going on. I think it's great to have that dialogue. Certainly, if you're anticipating some sort of inheritance, it's good to talk to your parents and see if they're on the same page.

Also--and I think this might be an even more common scenario among our Morningstar.com viewers and readers--maybe you have no wish to have an inheritance. You really want your parents to spend everything that they have. Let them know that, too. So, get in there, have that discussion, even though it may not be especially comfortable.

Stipp: Christine, these are great tips and great tools for folks who are helping their parents in retirement planning. Thanks for joining me today.

Benz: Thank you, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.