Lipika Frith, 38, of Tallahassee, Florida, always thought her parents would have enough money to retire in comfort, but things didn't work out that way. After her father passed away two years ago, her 73-year-old mother, who was partially paralyzed, had a tough time paying her mortgage and mounting medical expenses. "Money is the last thing I wanted my mom worrying about," says Lipika, a part-time legal researcher. She tried to help conserve her mother's limited resources by buying her groceries and taking her out for meals. But that put a financial strain on Lipika and husband Jerry, 36, a salesman; they were already struggling with the high cost of raising their children, Kristopher, 16, and Maya Grace, 2. "Mom had some income and investments, but we worried how long her money would last, especially if there were more setbacks," she recalls.
Lipika, whose mother died in October, is one of the growing number of Americans who have felt the squeeze trying to help their aging parents make ends meet. Across the country seniors have seen rising costs take huge chunks out of their social security and pension checks. In the face of longer life spans and chronic illness, even those who've diligently saved all their lives are seeing their nest eggs dwindle and debt rise.
As a result, about one in three adults contribute to their parents' care—on average, some $2,500 a year—according to the Pew Research Center. That can be hard not only on your pocketbook but also on your emotions. "Becoming a parent to your parents is not what any of us expect to be doing at this stage of life," says Georgia Witkin, PhD, a psychiatry professor at New York City's Mount Sinai Medical Center. "It's new—and often very frightening— territory." Whether your mom and dad need to manage their money more wisely or cope with a full-blown financial crisis, there are ways to lend them a hand without sacrificing your savings or your sanity.
Your parents are confident they have enough money to live comfortably during their retirement years. You'd like to get a clear picture of their financial situation before a crisis occurs, but they feel money matters are private and don't want to talk to you about them.
An indirect approach is usually the best way to get them to drop their guard and start a conversation. You could say, "Mom, my best friend's parents are really struggling with money and she's helping them sort things out. How are you guys doing?" You could also pass along relevant newspaper and magazine stories, or suggest attending a financial seminar together. "It may take several attempts, but chances are good that money's on their mind, and they'll be relieved to talk about it," says Jonathan Pond, author of Safe Money in Tough Times (McGraw-Hill).
Once they do open up, gather their financial paperwork (bank statements, investment records, loan documents, etc.) and determine their total assets and liabilities, income and expenses. Reassure them that you want to be certain they have enough money for the years to come and that you are not trying to take control. "Some seniors are hesitant to share financial information because they're worried their children will take all the money," says Jeanie Wyatt, CEO of South Texas Money Management in San Antonio. Then figure out how long their funds will last at their current rate of spending. (Use the American Association of Retired Persons Retirement Nest Egg Calculator at aarp.org/money.) If there's not enough money, your parents may need to adjust their investments. Pond recommends a mix of one-third stocks and two-thirds income-earning securities, such as CDs, bonds, and money market funds.
Now is also a good time to ask your parents about other key money matters. Do they want to stay in their home or sell it and move to a smaller place? Do they have a long-term-care policy? "When seniors run out of money and don't have coverage, the cost of care usually falls to their kids," says Lyn Dippel, vice president at Financial Advantage, in Columbia, Maryland. If your parents don't have insurance, Dippel suggests buying them a policy and splitting the cost with your siblings.
And what if your parents won't discuss their finances? Hire a financial advisor. Ask friends, family, and colleagues for references, or visit the National Association of Personal Financial Advisors website (napfa.com). Pond suggests using a fee-based professional rather than one who earns commissions on sales. "You want someone who is independent and will recommend what's in the client's best interests," he says. Set up an initial meeting and inform your parents you're coming along but that they'll have final say on hiring the advisor and managing their money.
Half of your parents' retirement fund was invested in the stock market—at your urging—and the value of their portfolio has plummeted. Though they're trying to downplay their troubles, you can see the warning signs, including mounting unpaid bills, maxed-out credit cards, house repairs left undone. The stress is taking a toll on you and also causing arguments between you, your husband, and siblings.
Don't waste time and energy feeling guilty. Instead, address the problem head-on. Figure out how much they're coming up short each month, then look for immediate ways to cut expenses. "Simple cutbacks, like eating out less and canceling premium cable channels, can save a couple hundred dollars or more a month," says Pond.
At the same time, take steps to boost their income. One option is moving low-rate savings and money market funds into higher-yielding short-term money market accounts, CDs, and bond funds. "You could increase the yield by 2% without putting the principal at risk," says Pond. (To find the best rates, visit bankrate.com/cd or go to investinginbonds.com.) Encourage them to sell unnecessary possessions, like their stamp collection or the dining room furniture they never use.
You've also got to tackle their credit card debt. First, discourage your parents from racking up more charges. Then go to the National Foundation for Credit Counseling at nfcc.org to find an expert who can help them negotiate with their creditors and set up a payment plan. If you want to give them money to help pay off what they owe, talk with your spouse about how much you can afford. Then sit down with your siblings and ask them to contribute in a way that feels fair to everyone. Those who earn less could help out in another way, such as by taking your parents to doctor appointments. "You want to work together for their sake and keep past rivalries out of it," says Witkin. A plan that involves the entire family will ease your anxiety—and keep your spouse from feeling angry and resentful. If you can't come to an agreement, consider hiring a financial advisor or attorney to act as an intermediary.
If these steps don't bring their budget back in line, your parents may have to take out a reverse mortgage, which allows those 62 and over to borrow against the equity in their home. The loan doesn't have to be paid off until they move, sell the property, or pass away (you and your siblings will likely be responsible). Reverse mortgages typically have steep fees and aren't right for everyone. "A financial advisor can help you weigh the pros and cons," says Wyatt. For more information, visit the Reverse Mortgage Education Project at aarp.org/money.
Your mom and dad have always counted on selling their house and buying a cheaper place to finance their retirement. But the value has dropped, and they can't find a buyer. Your parents have missed several mortgage payments and could be facing foreclosure.
Get the name of their lender and call immediately to find out what their options are for getting back on track. Most mortgage firms will work with delinquent borrowers by negotiating new payment plans or refinancing their loans at lower rates. "The sooner you get in touch, the greater chance you have of saving their home," says Pond. Be prepared to explain why your parents haven't been able to make their payments and to provide information about their overall assets and liabilities.
If you don't want to negotiate with the lender yourself, have a housing counselor do it for you. The Department of Housing and Urban Development (hud.gov) offers free or low-cost help nationwide, and its new Hope for Homeowners program provides 30-year, fixed-rate Federal Housing Administration mortgages for those at risk of foreclosure. In the meantime, help your parents sort out their bills and determine which ones need to be paid immediately. Call their unsecured creditors (such as doctors, dentists, etc.) and ask to postpone or reduce their payments.
If foreclosure is inevitable and your parents owe more on their loan than their home is worth, consider a short sale, where the bank agrees to accept less than the loan balance. Another possibility is filing for bankruptcy, which would allow your parents to keep their home and eliminate at least some of their debt. Contact the National Academy of Elder Law Attorneys at www.naela.org to find a lawyer who can help all of you decide what's the best course of action.
Originally published in the February 2011 issue of Family Circle magazine.