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.
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