Wealth management
5 strategies to help aging parents manage their finances
Worried about Mom and Dad’s finances? Learn when to step in and how to create a respectful transition of money management.
Summary
- Start financial conversations early and gather important information about your parents’ finances, including accounts, incomes and debts.
- Have your parents complete trusted contact forms and designate a power of attorney to ensure proper financial decision-making.
- Professional money management can prevent emotional investment decisions that might be too conservative, helping protect your parents from outliving their savings.
Noticeable changes with Mom and Dad
Sometimes it’s obvious when older parents need help managing their money. Dad’s accountant calls unexpectedly, worried he’s forgotten to pay his taxes. Maybe Mom’s been in and out of the hospital, which means she hasn’t had time to pay bills or monitor her investments.
Sometimes the warning signs are more subtle. You see a stack of unopened bills in the kitchen. A check you wrote Mom doesn’t get cashed. The gardener says he hasn’t been paid. The latest electric bill was paid twice. When you ask your parents about these things, they say not to worry—but their body language says otherwise. You sense they’re overwhelmed by tasks they’d been managing fine just a few months prior.
If any of this sounds familiar, it may be time for you or another family member to step in. Here are five steps that could make the transition to managing your parents’ finances a little easier:
1. Begin the conversation early.
Even if your parents aren’t yet ready to cede control of their finances, the key is to start talking now. “Getting a complete understanding of their income sources is invaluable,” says Tamara Telesko, a director on TIAA Wealth Management’s wealth planning strategies team. Find out where they keep their money—bank accounts, brokerage accounts, 401(k)s, IRAs and so on. Get a handle on their debts and on all current and future income, such as Social Security, pensions and guaranteed income from annuities. Ask where important financial and legal documents are stored. “If they have a financial advisor, you should get the advisor’s contact info and find out what their credentials are,” says Telesko. “If they have an accountant or an attorney, do the same.”
2. If Mom or Dad isn’t ready to give up control, make sure the trusted contact forms on all their financial accounts have been filled out.
Retirees are now a prime target for the
3. Ask them to assign power of attorney (POA).
If Mom and Dad ask you to manage their finances—or even if they expect you to take over eventually—make sure they’ve filled out a power of attorney form. POA authorizes you to make financial and legal decisions on their behalf should they become unable to do so on their own. Remember, just because Mom gave you the username and password to her bank account, it doesn’t mean you’re legally authorized to use them to pay her bills. If you or your parents need help drafting and executing a POA form, your TIAA financial advisor can connect you with an attorney. Another option: TIAA Wealth Management has partnered with online estate planning firm Trust & Will, which helps clients create POA forms and other estate planning documents online.
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4. Hold a family meeting.
The family meeting is an opportunity for your parents to explain their choices—for example, why they made one child the POA for financial decisions and another the healthcare proxy, which is a role that requires a separate form to be filled out by your parents. It’s also an opportunity for parents to
When it comes to family meetings, the more transparency, the better, according to Jim Schlag, an executive wealth management advisor in TIAA Wealth Management’s Roseland, NJ, office. Schlag encourages clients to be forthcoming not only about their POA and healthcare proxy choices but also about how they want their money managed and how they’ve structured their estate plans. “Parents don’t want their kids fighting or not talking to each other after they’re gone,” says Schlag. “Putting everything on the table now can help avoid infighting and second-guessing later on.”
5. Take the emotion out of investing, which may mean hiring an independent money manager.
Once children take the reins, their instinct is often to invest parents’ savings too conservatively, according to Schlag. “They don’t want to see the parents lose any money,” he says. “They don’t want to be perceived as doing a bad job.” But an overly conservative investing strategy can be risky. If your parents’ retirement accounts are only earning 4% a year—and that’s before paying income taxes on 8%-a-year required minimum distributions (RMDs)—the conservative approach could wind up eroding principal too quickly and increasing the risk of Mom or Dad outliving their savings. It’s one reason why Schlag often recommends that children hire professional money managers. “It takes the emotion out of managing parents’ money,” he says.
We’re here to help you and your family.
Handing over the financial reins is a difficult conversation to start. Your TIAA advisor can help you navigate supporting your parents’ finances with care and respect. Don’t have an advisor yet?
Digital estate planning tools for TIAA Wealth Management clients
TIAA Wealth Management clients receive discounted pricing on Trust & Will—an online platform that simplifies creating essential documents like power of attorney and healthcare proxies for your parents. Access your discount by
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