There is this thing that happens in the middle years of our lives. It seems nearly unfair. As incomes go up, our expenses often seem to go up much faster. It often feels as if we cannot do everything we want to do to support the ones we love while also living our desired lifestyle. This is frustrating.
I hear this from clients all the time, especially when we initially start working together. People who are middle-aged, say 40-65 years old, often realize financial pressure from three sources: aging parents, young-adult children and their own retirement. I call this the trifecta of financial stress. It squeezes people and drains so much joy out of living.
If you or someone you care about is struggling with this trifecta, I want you to know that there are effective solutions. I believe you can greatly reduce financial stress, take control of your future and once again find joy in the little things. You can have peace of mind about the future. Let me share with you what I think it takes to get there.
When I start working with a new client, one of the very first areas we focus on is retirement. I focus here for two reasons. First, retirement is a top concern for every client I serve, no matter how well-prepared they may or may not be. It gnaws at people in the back of their mind. Second, retirement is usually the only one of the big three stressors – the other two being adult children and aging parents – where my clients are fully in control.
I believe in focusing on those things you can control. You probably cannot control or make decisions for your adult children, even though you might like to. You probably cannot predict how your aging parents’ health and need for support will turn out. None of us know the future.
But you absolutely can control many decisions regarding your retirement. To get peace of mind about retirement, I recommend that you work closely with a qualified financial planner who deeply knows you.
When I talk about retirement with my clients, they usually have a few concerns and questions:
- At what age can I comfortably retire, and do I need to shift my financial priorities to get there?
- How much money will we need in retirement to live our desired lifestyle?
- Have we saved enough money or do we need to start saving more (if they are still working)?
- How do we make our retirement money last so it doesn’t run out?
- How much money that we’ve set aside for retirement should we give to our adult children who really seem to need it far more than us?
- How do we protect our retirement nest egg from situations outside our control like stock market crashes, medical emergencies, natural disasters or even being sued?
All of these questions tend to roll around in the back of the mind of my clients – until they get clarity. Let me provide some guidance now that might help you get clarity and peace of mind.
HOW TO ADDRESS RETIREMENT CONCERNS
The first and most important thing you can do to address retirement concerns is to develop a financial plan that you believe in. This is step one. I recommend this even if you are already retired. Your financial plan should be realistic about:
- How much your annual lifestyle will cost in retirement and how this might change over time.
- How much money you’ll need to last at least 30 years after you retire.
- How to make sure you never run out of money.
These can be difficult assessments to make and they usually require deep conversations about the future. You have to envision a lifestyle that you may not be living yet. These conversations require reflection on your part. But it’s also a good idea to get perspectives from people you trust, especially an experienced wealth manager.
Out of these conversations, you should expect a realistic financial plan that is tailored to your situation and goals. The plan should be based on hard data and realistic projections that account for reasonable rates of return on your investments. However, a plan is only effective if you follow it.
I want to address a common issue I see with new retirees or those about to retire. Many of my clients cheer when they finally cross that retirement line. It’s a big deal. Usually they have been planning for this moment for a long time and feel a certain sense of relief. But then they start to feel nervous.
The danger zone for making retirement money last is usually the first 5 years after retirement. There are several reasons I say this.
- Many retirees have to learn to adjust to living on a budget that does not include a monthly income stream from a job or business. That can be a real adjustment and may take several months or even years to fully implement.
- A retirement nest egg can seem like a great big pile of money and the temptation to spend more than you should can be really strong. This is especially challenging for people who have been saving and delaying gratification for many years. The desire to “live a little” can be almost irresistible.
- I tend to think of retirement sort of like a permanent vacation. Most people spend far more money on vacation than they do while at home. Daily work focuses the mind and imposes discipline. Once that daily discipline is gone – the very thing we love about vacations – financial discipline can be gone too.
- A lot of people have a list of projects, like home improvement projects, that they’ve been delaying until they have time to address them. It is very easy for projects to cost 2 to 3 times what you originally projected.
- When you have a sizable nest egg and your adult children seem to really need the money, the temptation to help them can be almost overwhelming. This is especially problematic for people who did not grow up with wealth and remember well their own struggles.
I believe the answer to all of these challenges is to work with a financial partner who will be with you for the long-term and help you make great choices. You need someone to help you sort through your priorities and make the tradeoffs. But more than anything, if you want your money to last, you have to live by that dreaded B word: BUDGET. This isn’t fun, but it produces real peace of mind.
AGING PARENT CONCERNS
Most of my clients who have aging parents experience two types of concerns. First, they are concerned for their parent’s physical and mental well-being. Second, they are concerned for their parent’s financial well-being. Both of these concerns are overladen by a sense of obligation and sometimes even guilt.
For many of my clients who are still working and have aging parents whom they love, they often feel like they’re not spending enough quality time with the elder parent. This can produce feelings of guilt. Some people have said, in so many words, “my parents were really there for me when I was growing up but now that they need me, I’m struggling to give them the time they need.”
Many people turn to sources of care outside the immediate family to help in this situation. In-home care providers, long-term care facilities and other options can help bear the physical and emotional burdens associated with elder-care. If an elderly parent’s financial situation allows for these options, they can offer real relief.
But this often leads directly to the second concern: the financial well-being of aging parents. Even if parents have more than enough money to support them for the long-term, many people still struggle with two difficult questions:
- When do we begin to insert ourselves into managing our parent’s financial situation?
- How do we make this manageable for us so it’s not overwhelming?
These two questions are not easy. As the human body ages, the mind often becomes cloudy. Elderly parents usually need help with managing their finances. But making sense of their financial situation can be very challenging. Here are some fairly common situations where I see people struggling:
- Titles: where are the titles for the house and for automobiles and who has access to these titles?
- Safe Deposit Boxes: do these exist and if so where are they, what’s in them and where is the key?
- Passwords: what accounts require passwords and what are they? Many elderly people have embraced online banking but do not share or write down their passwords, often because they were told not to do so. What’s more, they often don’t know the name of a specific banker. They simply call the bank when they need to talk to someone.
- Assets: what do the parents own? How is it held or titled? If it includes high-value collectibles like artwork or jewelry, is there a bill of sale? What is the value and do they owe anything against it?
- Taxes: where are the tax returns for the prior two years and who prepared the returns?
- Estate Planning: do the parents have a will or trust? Who is the attorney who worked on the trust? When was the estate plan last updated? Who are the trustees of the trust? Who has access to the documents? Who is in possession of the original documents?
- Insurance: what kinds of policies are in place today, for instance – life insurance, medical insurance, property and casualty insurance and long-term care insurance? Where are the insurance documents? Who are the beneficiaries on the life insurance policies and when were these policies last reviewed?
- Credit Cards: do the parents have these? What are the balances? Who are the authorized users? Where do the statements go? When did someone last run a credit report to ensure you are not being defrauded?
When you look at all of these areas, it becomes clear that figuring all of this out can be a huge job.
HOW TO ADDRESS CONCERNS FOR AGING PARENTS
If you or someone you care about is facing this situation, my counsel is this. Don’t wait. Start the process now and divide it up into reasonable increments of activity that won’t completely overwhelm you or your parents. You need a plan and the opportunity to do this work in stages.
If you wait until you have to completely take over your parent’s financial situation, you might very well miss important details that could cost you dearly – especially portions of the wealth you’ll need to care for your parent later on.
There is a real emotional burden that comes with beginning to sort through stacks of paper in an elderly parent’s home. This is especially true if the parent is no longer in the home. The waves of nostalgia can wash over you in surging swells, slowing your progress. But that’s only part of the problem.
Take a look at the list of documents and items I noted above. Let’s assume that it takes you at least three hours to find, organize and begin to manage each document. Let’s also assume there are 30 documents. That totals 90 hours of very emotional work. If you have to do this all at once, the toll on you could be enormous.
My other recommendation is that you plan this work and do it with the support of a financial partner who deeply knows you and will help you through it. I have helped numerous families plan for these transitions and get the work done in reasonable increments. This takes a huge burden off their shoulders and helps them regain peace of mind.
YOUNG-ADULT CHILDREN CONCERNS
Many of my clients who are in their 40s, 50s and 60s have young-adult children who are just coming out of college, establishing themselves in their careers and starting their own families. My clients often watch their young-adult children struggle with situations that vexed them in their youth. They see their children making the kind of financial mistakes they made.
Their impulse is to step in and “help” the children. After all, they don’t want to see their children suffer. But in my experience, offering help in the form of financial gifts often hurts more than it helps. Before I explain why I believe this and what I think a better alternative might look like, let me explain the kinds of situations that young adults seem to struggle with.
New college graduates are often very eager to start earning money, especially if they lived on a tight budget while in college. Most people in their 20s will not automatically think that some portion of their take-home pay should be tucked away for retirement. They are also learning to stand on their own two feet financially. Some are saving for their first home. Some of them, for the first time, are having to pay their own medical insurance premiums. Learning to adjust to these financial realities can be challenging.
Young adults who are a bit more established in their careers are often thinking about marriage and children. They’re also taking on what will likely be the single biggest financial covenant they’ve ever made – buying a home. With home and family come the need for:
- Saving for a down-payment on a home
- An emergency savings account for unexpected expenses
- Starting a 529 college savings plan for children
- Life insurance
- Estate planning documents such as a Will and power of attorney for property and health care
- Building a long-term wealth plan
- Putting a strategy in place to make interest work for them, not against them
My mature clients who’ve been through this phase in life already know what to do. So they might be inclined to share what they know or make recommendations. Young-adult children often seem to push back because they don’t want mom and dad controlling them. So what do you do?
HOW TO ADDRESS CONCERNS FOR YOUNG-ADULT CHILDREN
If you or someone you care about is facing this situation, here is my advice. The best gift you can give your young-adult children is not money – it’s financial planning. Here’s why I say this.
As much as we love our children and want to be there for them when they need us, we have to face the reality that we will not be around forever. If our children have not learned to make it on their own, their future will be at-risk. Just as we have all had to internalize certain disciplines and habits to realize financial success, we need our children to do the same.
The best thing we can do for our children is to help them learn to budget, save, live within their means, set financial goals and work toward them and gain confidence in their ability to manage their own financial affairs. If we help our children do this, they will thrive long after we are gone. They might also teach their children to do the same.
I am fortunate to work with numerous multi-generational families where I am helping young adults build and stick to financial plans that will make them completely financially independent of their parents. My efforts not only protect the parent’s retirement money, they also provide the parent’s a deep sense of peace about their children’s future.
Retirement, aging parents and young-adult children can be the trifecta of financial stress. However, they should be the greatest sources of joy in your life. I believe that the right financial strategies can greatly reduce anxiety and give you greater peace of mind. If you are not confident in your current approach, we should definitely talk.
© 2018 Whitnell & Co. The information contained in this article is provided for informational purposes only.