Investment Planning for Your Older Parents

Caring for older parents requires time and energy that can impact a family’s lifestyle and emotional resources. Having a plan available to manage the financial resources can alleviate some of the stress.

Communication is an essential first step. “Talk to your parents as early as possible about their plans to secure a retirement-income stream, manage their assets and meet possible long-term health care needs,” suggests LaTonya Boston, Financial Planning Specialist with Life Event Services at Wachovia Securities in Richmond, Va.

This may not always be easy to do; older adults can be reticent about their personal finances. For example, they may be open to discussing components of their estate plan that relate to emergency situations — such as their living will and powers of attorney for medical care and finance — but not realize that discussing their day-to-day strategies for nonemergency situations is just as critical.

Managing Retirement Funds

“A person entering retirement must make many decisions — some of them having a significant impact on a surviving spouse,” says Boston. As your parents discuss their life expectancies and plans for managing resources, the following considerations may arise, which are best discussed with a Financial Advisor:

Whether to take a larger pension in lieu of survivorship features that will reduce monthly benefits
When to draw Social Security benefits, since timing affects not only the individual benefit, but the spousal and survivor benefits as well
Drawing income from various types of assets for tax efficiency

In addition, “The effects of inflation need to be considered when building a retirement income strategy, ” says Boston.

Historically, when people entered retirement, their usual strategy was to make their portfolio more conservative by reducing their exposure to equities and increasing fixed-income investments. But with today’s longer life expectancies and extended retirement periods, maintaining equity exposure in a portfolio may be essential to help fight the effects of inflation.

Encourage your parents to discuss their asset allocation with their advisor to help make sure it will meet their future lifestyle needs. Reviewing their current allocation regularly is important, especially if there have been any major life changes. Consolidating or rebalancing assets may be appropriate.

Meeting Long-Term Care (LTC) Needs

About 60 percent of people over 65 in the U.S. will need long-term care services at some point. Learning about the cost of long-term care and planning for it can help solidify your parents’ retirement plans.

“Preplanning conversations with your parents about LTC options help clarify expectations about what support you can provide,” says Boston. If your parents cannot afford an LTC policy, consider the value in helping to purchase a policy for them. Most LTC policies have provisions for home-care services, so this might allow you to continue a career while serving as a caregiver to your parents.

Recognizing that long-term care is expensive, some states have partnered with private LTC insurance companies to help its residents protect their assets from the high cost of long-term care. These policies are known as “partnership policies,” and they automatically offer coverage that keeps pace with inflation and protects assets. The partnership initiative seeks to improve the quality of LTC policies and the affordability of the insurance, and to increase public understanding of the risks and costs associated with long-term care. Additional information on LTC options is available at www.longtermcare.gov.

If your parents are ineligible for LTC policies because of pre-existing medical issues, an alternative plan must be developed to meet future medical needs. The following strategies can help ensure that you don’t have to cover all unplanned costs out of pocket:

Research Medicare eligibility and coverage at www.medicare.gov. Knowing the extent of the benefits can help you take full advantage of them.
Buy additional coverage, such as supplemental prescription drug insurance, to meet any gaps in insurance policies.
Monitor legislative initiatives to stay abreast of changes that may lead to additional health coverage options.

Because your parents’ resources and expectations may affect your own planning, it is important to talk to your parents about their situation before a need or a crisis arises. This way you can be prepared to help or consider alternatives. If the conversation seems awkward, you may consider discussing your own long-term plans with your parents as a way to ask about theirs. This can help you ease into the conversation and develop an appropriate strategy.

For more information or help finding a financial advisor that is right for you, contact:
Michael von Berg
Assistant Vice President - Investments
Wachovia Securities
703-481-2855

Wachovia Securities/Wachovia Securities Financial Network is not a tax or legal advisor.

Insurance products are offered through nonbank insurance agency affiliates of Wachovia and are underwritten by unaffiliated insurance companies. Wachovia Securities, LLC, and Wachovia Securities Financial Network, LLC, are separate nonbank affiliates of Wachovia Corporation.

Any Research, analysis, news and/or information herein were drawn from sources believed to be reliable, however Head Spring Farm does not guarantee its accuracy or completeness. Any opinion expressed reflects the opinions or the authors. This information is subject to change without notice and should not be acted upon without prior due diligence. This information is not an offer of solicitation for the purchase or sale of any item unless specifically noted.