Why Your Older Parents Need Help to Manage Personal Finances

 In Personal Finance, Retirement

help to manage personal finances

As our parents age, a lot of things change. Eventually, we find ourselves taking care of them in much the same way they used to take care of us.

Amongst other things, this will mean stepping in and making sure their finances are managed correctly.

The Elderly Don’t Always Make the Best Decisions

There’s a good chance your parents may be as sharp as ever. That being said, it’s no secret that, the older we get, the more our minds begin to slow and the easier it is to make mistakes. While younger people may be equally prone to poor decision making, they at least have time to recoup the losses suffered by these mistakes.

This is a very good argument for why older people need help to manage their personal finances. As the Center for Retirement Research at Boston College pointed out in a study on the elderly and their finances:

“Older adults experience substantial declines in cognitive function over time. And evidence indicates that, after peaking in middle age, the ability to make effective financial decisions declines.”

At the moment, there is no real talk about what policymakers could do to combat this problem and defend our older parents. As their children, we must step in and make sure they receive help to manage their personal finances.

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The Myth of Financial Independence

There’s another important study that bolsters the argument put forth in this piece. Fidelity Research gets the credit for coining the term for this idea. In short, the “independence myth” refers to the pervasive conviction that, as people age, they will remain autonomous where their finances are concerned and manage them by themselves.

Fidelity did a study on financial independence that dispelled this common myth. According to the paper:

“According to Fidelity Investments’® Independence Myth study, this quandary is something most seniors would prefer to assume isn’t going to happen to them, yet is highly likely, given that people are living longer and are more liable to experience the ailments that come with old age, including the possibility of dementia. In fact, while only nine percent of older adults (aged 50-80) surveyed felt they’d ever lose the ability to manage their day-to-day finances, 60 percent admit having witnessed it happen to a friend or family member—and 40 percent helped manage their own parents’ finances.”

Tipping Points to Watch Out For

Fidelity was also kind enough to suggest some tipping points to look for in our parents as signs it’s time to step in and make sure someone can help manage their personal finances.

These were identified as:

  • If one or both parents asks you or someone else for help with their finances
  • Around their 75th birthday (this is when most children step in, on average)
  • When there is has been a change in their mental wellbeing; this can be a hard thing to detect when the change is gradual

Ideally, you want to begin talking with your parents well before these tipping points make it an urgent manner. You’d be smart to start creating a transaction plan now.

Fortunately, according to Fidelity, 65% of adults have expressed some level of interest in receiving help from a financial advisor with managing their finances as they get older and their abilities diminish. For many of you, talking to your parents about a transition plan will be a conversation they welcome.

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The Need to Step In

Now, while that last paragraph hopefully provided some degree of optimism, it’s again important to encourage you not to wait until your parent asks you for help or otherwise gets to the point that the need is obvious.

That Fidelity survey spoke to 1,024 people between the ages of 50 and 80 with at least $500,000 worth of assets and had their own financial advisors. Guess how many said they believed they would ever lose their ability to handle their own finances?

Just 9%.

Recall that 60% of respondents stated they had already seen someone they knew lost their financial independence. 40% of them also reported that they had helped their own parents’ with their money.

Yet, fewer than 10% thought they would ever need help to manage their personal finances at any time. This should underscore the importance of knowing when to step in and planning ahead.

Using the 50/75 Rule

If you’re still a bit confused about when it’s appropriate to step in and help your parents, consider using the 50/75. While it’s not a hard-and-fast science, it’s become extremely popular amongst children in your shoes.

Basically, it states that the time to step in is when you turn 50 or your parents reach 75, whichever comes first. You may remember that we cited their 75th birthday as a tipping point.

The Good News About Finding Help to Manage Personal Finances for Your Parents

There is some legitimately good news where your parents’ financial future is concerned. For one thing, if your parents haven’t already retired, there’s plenty they can do to afford a comfortable retirement:

  • Rethink what you truly need from your Golden Years (many people enjoy keeping a part-time job, for example)
  • Reexamine your debt
  • Leverage the value of your house
  • Delay accepting social security
  • Increase savings significantly

Of course, it still pays – literally – to have the help of a professional advisor. There’s more good news on this note, though, because they’re not nearly expensive as they’ve traditionally been. In fact, you and your parents won’t even need to leave the comfort of your homes to benefit from them.

Investment websites are the future of retirement planning. These highly-automated resources are incredibly user-friendly and will make it extremely easy for your parents to keep their desired independence and a healthy investment portfolio.

Finally, bonds are a great asset class for retirement accounts. They don’t demand nearly as much attention as stocks, yet their payouts can be significant, so your parents get healthy returns without having to invest serious amounts of time monitoring them.

While it’s pretty much inevitable that we will need to help our parents with their money, it should be clear from the above that this doesn’t demand a Herculean effort. Just make sure you stay ahead of the issue, so it doesn’t become a problem.

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Sergey Sanko
Sergey had started an IncomeClub after years of being an investment advisor for high affluent investors and managing fixed income securities. He is the lead investment advisor representative and holds a Series 65 license. Sergey earned his Executive MBA degree from Antwerp Management School.
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