Last Week’s Question of the Week: Beginning at what age can you take advantage of the Qualified Charitable Distribution rule? Is it 65 or 70.5?
ANSWER: It is only available for IRAs and individuals who have reached RMD age, 70.5 years and older.
HOST: So, your topic today revolves around caring and paying for aging parents, and how that might affect your retirement, correct?
KLAAS FINANCIAL: Yes, this really can have some impact on our listeners and their future portfolios and retirement plans. So, the key words here today are longevity and planning. We are just trying to do some reality setting today.
With longevity, we are seeing the effects that many of our clients who are in their 50’s & 60’s caring for their parents either financially or physically who are in their 70’s, 80’s and 90’s. This is certainly role-reversal. While caring for your parents is certainly an important and compassionate thing to do, we want to highlight some realities associated with this, especially as you are working on your own retirement planning.
Stress: First, recognize that caring for an aging parent is often a stressful undertaking and time consuming. It can take a huge emotional toll on everyone in a family, but for women the financial impact can hit especially hard.
Long-term impact for caregivers: Understand the long-term impact especially for women. The reality is that 2 out of 3 caregivers are women, and women lose valuable time outside the workforce causing them to have fewer contributions to pensions, Social Security, and other retirement savings vehicles. Fact: Daughters tend to take more of the physical caregiving aspects for their parents, while sons tend to help more financially.
How many of us are caregivers? According to a study by MetLife that looked at the economic impact of care for seniors, the number of adults taking care of aging parents has tripled in the past 15 years, and a full 25 percent of grown children are helping their parents by providing either personal care or financial assistance. In 2015, the National Alliance for Caregiving and AARP reported that 34.2 million Americans provided unpaid care to an adult age 50 or older.
Cost in terms of hours and dollars spent: In June of 2017 Research from the Center for Retirement Research at Boston College reported that adult children who do provide care to their parents devote an average of 77 hours per month, which can take a toll on both the finances and health of the caregiver. And as baby boomers move into their 80’s the caregiving burden is likely to become a bigger concern.
Financial Costs: When adult children quit their jobs, or cut back on hours, they not only give up immediate income. They also reduce the amount they’ll eventually see in their Social Security checks. They might give up additional years of accumulating pension benefits. Lost wages, Social Security benefits and pension benefits, caregivers’ losses total $3 trillion. The average adult child who is a caregiver loses $303,880 in lifetime wages and retirement benefits.
HOST: What can we do as adult children to help our parents in advance?
KLAAS FINANCIAL: Start a discussion. Talking with your parents while they are healthy gives them more control over what happens to them if they eventually need care either in their home or assisted living. While it can be tough for parents in their 70s or 80s to open up about money troubles to their grown kids in their 50s or 60s, you can’t come up with a financial plan without knowing what you’re working with. Be open in your conversation with your parents, let them know that you don’t want them to struggle or be a burden on anyone. Include discussions with siblings so that everyone is on the same page.
Review their desires: Do they want to continue living in the same community? Do they eventually want to move closer to children or grandchildren? Are there any renovations they need to make on their house?
Review their insurance plans: If your parents’ savings and assets aren’t enough for their retirement, you may end up providing care and financial help, derailing your own future plans as a result. Helping THEM plan for Long-term care may help you with keep your plans on track.
Review their estate planning: Make sure that they have their estate planning documents up to date and their burial wishes understood by the whole fam
HOST: What about protecting your older parents from people trying to take advantage of them?
KLAAS FINANCIAL: This is also very important.
Don’t Let Your Parents Fall for Scams: If your parents are trying to boost their nest egg, they may be tempted into making investments that promise huge returns but are actually scams targeting the elderly. Declining mental health may also affect their ability to make wise decisions, which is why scammers treat retirees as prime targets.
Keep track of where and how your parents are spending money, become involved in helping them study investments or “deals” and remain alert for any suspicious activity. Giving to excess charities may be
Consult with your parents together with their financial planner to understand the financial reality for your parent’s future. Or, perhaps bring them to your financial planner. Having a professional may help the conversation.
Care for Yourself: When adult children provide care for aging parents, research has found, their own health suffers. People who are family caregivers are more likely to suffer from depression, stress, heart disease or alcohol abuse.
They are less likely than their peers without caretaking roles to take preventive health steps, like mammograms, colonoscopies or even blood pressure readings. It adds up to a population so involved in looking out for the health and wellbeing of others that they increase their own risk of dying.
Remember that if your health fails, you won’t be able to continue to care for your parent. So, get yourself to your own physician when you feel ill, or simply too stressed out for anyone’s good.
HOST: Now a question in our Money in Motion Listener Question Corner from Ryan, who asks, “At what age should I consider cancelling my old life insurance policies?”
KLAAS FINANCIAL: Thanks Ryan for the question, we hear this question frequently from our clients. This is something to review on an ongoing basis with your financial team, your advisor, your accountant and possibly your estate planning attorney. While you may no longer need it for immediate needs as you did when you were younger, before you rush to cancel, consider what your current and future needs for your spouse may be. Also remember that if your policy has a cash value component that has accumulated tax deferred and you may have more money in cash value than you paid in premiums.
Generally, you are allowed to defer income taxes on those gains as long as you don’t sell, withdraw from, or surrender the policy. If you do sell, surrender, or withdraw from the policy, the difference between what you get back and what you paid in is taxed as ordinary income.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.