Consider it a fair trade: Talking to your older parents about their finances is as hard for you as talking to you about sex was for them. Both conversations, however, are absolute must-haves. How can you get through the tough talk with your parents? And what ground do you need to be sure you cover? Jean Chatzky, “Today” financial editor and Money magazine editor-at-large, gives advice on asking the tough questions.
Earlier this week, the new Medicare prescription drug plan went into effect. Your parents — if they're over 65 — are eligible for coverage. You can use that as a way to get your parents talking about health care costs ... which will get them talking about finances. Reassure them that you're not only after their money, and that you want them to remain in control of their lives and their finances for as long as possible, but explain that the best way to insure that they get what they want is to share those wishes with you. Then tackle the big questions.
How much money do you have?
Your parents, thankfully, will likely live a lot longer than their parents before them. It would be nice (for all involved) if whatever assets they've stockpiled for retirement (supplemented by social security) could last as long as they do. But in order to make that happen you need to understand — or to bring in a trusted financial advisor who understands — how your parents are living today. Do they have a substantial pension? Or are they living on Social Security and using their savings to keep going? Unfortunately, although magazines like mine have put a lot of emphasis on accumulating assets, we haven't talked enough about withdrawing money from retirement accounts in a way to make them last. If they're not sure how much they can safely withdraw each year, 4 percent of total assets is usually a good starting point. But then take the time to access some of the retirement planning tools on websites like T. Rowe Price.com which can help you get an even more accurate idea. If they don't like the idea of being subjected to any market fluctuations, you may want to consider an immediate annuity which can convert their retirement assets into an income guaranteed to last for life.
Where do you want to live?
You need to understand what sort of day-to-day life your parents envision today and in the future. Are they willing to move closer to you or one of your siblings to make taking care of them easier? Are they willing to move in? For some people, the most important, or one of the most important line items on their list is to live out their lives in the family home. If your parents are among them, one way to increase their incomes and simultaneously guarantee that they will be able to stay at home is to consider a reverse mortgage. This is an arrangement by which, essentially, the bank buys the house back from your parents either with a lifetime of monthly payments or by a single lump sum. If your parents live longer than the bank expects, it can turn out to be a very good deal for them. If they live a short time, it's a better deal for the bank. Make sure your parents want to stay in the home for themselves, not because they're intent on leaving the family home to you — particularly if you don't want it.
What if you get sick?
You need to know that your parents have three documents that will allow you to manage their health and finance needs if they become ill or incapacitated. Those are a living will (which tells a doctor or hospital whether or not they want life support), a health care proxy (which gives you or another individual the power to make health care decisions on their behalf) and a durable power of attorney for finances (which gives you or another individual the power to make financial decisions on their behalf.) If they don't have these, I recommend getting a copy of the “5 Wishes Living Will,” which is essentially a living will and health care proxy in one. I like it because it's written in plain English rather than in legalese. You can find it on the web at agingwithdignity.com.
Usually there's one child in the family — the oldest or the only girl that bears the brunt of these discussions, but if you have siblings you should definitely try to involve them. And as I said earlier, sometimes you just can't break through. In those cases a trusted advisor, a financial planner, lawyer, accountant, can help.
Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today" show and is also a columnist for Life magazine. She is the author of four books, including 2004's "Pay it Down! From Debt to Wealth on $10 a Day" (Portfolio). To find out more, visit her Web site, .