Continuum of CareFinancial Issues

Josephine Turner, Ph.D.,CFP

Professor, FYCS,UFL

Population Facts

Over 22 million households in America provide care for an aging person

83% of caregivers are female The fastest growing segment of the population

is people over 70 Traditionally people are not financially

prepared to live past 70 Traditionally women have less experience in

the financial areas than men

Population Facts Cont.

90% of respondents in a national poll believe they have a moral responsibility to take care of parents

Money is a touchy subject:Both parents and children value their ability

to handle their own affairsEach guard his/her privacyEach tries to avoid conflict

Method

Knowledge brings competenceCompetence breeds confidenceConfidence reduces emotional tension

When Should Children Become Involved in Parents’ Finances?

When there is a Critical concernsa medical emergency and parent can not

physically handle affairsheart attackstroke

When Should Children Become Involved in Parents’ Finances?

When there is a Chronic concernBuilds over timeNot immediately life threatening

A parent is chronically ill and financial affairs are becoming more difficult

Income has dropped or money has run outExcessive medical billsVictim of fraud

Signals of Financial Problems

Late fees Bounced checks Credit problems Missing bank statements Memory loss Illness Complaints about not having enough money Large withdrawals from accounts

Who Should Intervene?

Family member who:Has the time to helpLives close to parentFinancial expertiseWillingness to assist

Parenting Your Parents

Life has come full circleThe continuum in life is not a straight line

but a circle

Getting Involved

Usually happens when crises is looming or already occurredBills aren’t paidUtilities are about to be turned off

What to do First?

Track Cash FlowRecord income/expenses for past monthMaybe difficult because parents:

Often hide money from childrenMay not rememberHave not kept records

Typically income exceeds expenses until age 70 then savings are needed to meet expenses

Verify Financial Information

Check bills to determine if there are errors

Review expenditures to see if they are accurate

Request information on unclear transactions in accordance with the “Fair Credit Reporting Act”

Report any suspected fraud or financial abuse to appropriate authorities

Net Worth Statement

Preparing a net worth statement will help you determine how long the savings will last

Ratios that will help you in planning parent’s finances: Debt to asset ratio (goal for each $1 of debt, $25 of

assets) Debt to income (goal for retirees no more than 10%

of income going to debt) Investment assets to net worth (70 to 90% of net

worth in investment assets – lower for homeowner)

Taxes

Review income tax situation of parentsHave they filed taxes?Do they owe taxes?

Review records to determine next stepProfessional help may be needed

Insurance Coverage

Review insurance policies.Is coverage adequate? Too much? Too

little?Property (auto, homeowners)Liability (auto, homeowners, umbrella)Health (medical care, long term care,

nursing home care, Medicare drug card-D)Life

Investments

Review investments for appropriateness and availability to meet financial needs

Develop a schedule for IRA/pension withdrawals

Position investments to meet needs of later life

How Long Will Money Last?

Depends on amount, rate of return, and amount withdrawn to determine:Use financial calculators to answer the

question. (IFAS publication “How to use a Financial Calculator”)

Use attached chart

Estimating Withdrawal Rates From Savings and Investment Accounts*

Rate of Return

Years

5

Years

10

Years

15

Years

20

Years

25

3% 0.01797 0.00966 0.00691 0.00555 0.00474

4% 0.01842 0.01012 0.00740 0.00606 0.00527

5% 0.01887 0.01061 0.00791 0.00660 0.00585

6% 0.01933 0.01110 0.00844 0.00716 0.00644

7% 0.01980 0.01161 0.00899 0.00775 0.00707

8% 0.02028 0.01213 0.00956 0.00836 0.00772

Estimating Withdrawal Rates

Choose a percent of return (ex: 5%) Choose number of years you want money to

last (ex: 15) Determine amount of savings/investments (ex:

$100,000) Next multiply $100,000 by 0.00791 (intersect

of 5% for 15 year) You can withdraw $791 per month for 15 years

before the money is depleted

Mandatory Withdrawals

At age 70 ½ if you are retired, you must begin withdrawing funds from Traditional IRA’s 401 (k), 403(b)

Roth IRAs have no mandatory withdrawals IRS provides tables to compute amount of

required distributions Example table shows that a 73 year old must divide

amount of IRA’s, 401(k) other tax deferred accounts by 24.7 to arrive at this year’s withdrawal

Ex. $100,000/24.7 = $4,049

Preparing a Budget

With input from parent(s)Set goals for spendingDevelop a record keeping systemSet time to manage finances

Record incomeRecord expensesBalance, track, evaluateAt this stage in life, savings is not a goal

Money Management Systems

Use a calendar to list due dates of billsSet time to pay billsRecord expensesEvaluate spending

Not Enough Money?

If there is not enough income to balance spending:Decrease spending where possibleUse savings/investmentsSell possessionsUse reverse mortgagePublic assistance

Housing Options

What are plans for housing?Continue to live independently Nursing homeAssisted LivingLive with a family member

Downsizing

Distributing Assets

Methods used:WillTitled propertyOther tools used to determine asset

distributionWho gets non-titled property (“Who Gets

Grandma’s Yellow Pie Plate?”)Power of attorney

Living Will

“Five Wishes”Living willHealth care power of attorney

Resources

Burns, Sharon and Forgue, Raymond. How to Care for Your Parents’ Money While Caring for Your Parents. 2003. NY: McGraw Hill.

Turner, Josephine. Planning Your Financial Future. 2005. UF IFAS.