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He found himself in a financial bind. When Khalid Sumner became the father of twin girls in 2003, he could envision future college tuition bills for his daughters. But a year later, when his grandfather became ill, Sumner was hit with expenses he hadn’t anticipated and learned a harsh reality about family finances in the process: Starting a college fund for your children and saving for retirement aren’t the only major monetary stresses you’re likely to face in life. As parents and other relatives age, you may be called upon to help ensure their financial well-being, as well.
“My grandfather’s health slowly degenerated, and the brunt of his care fell on me,” says Sumner, 26, who was part of the recent subprime-related layoffs at Citigroup in New York City. “We had to pay for someone to come take care of him. We had to pay whenever he went to the doctor for visits. It got to the point where I didn’t know what was going to happen because after two or three months, there wasn’t going to be any money left.”
Sumner hadn’t planned for these expenses because he and his family had never had a conversation with his grandfather about what assets he had in place. It’s a mistake that financial planners maintain can be devastating to the wealth of entire families as parents and grandparents reach their senior years. “People may end up having to foot the bill for some of their parents’ expenses, particularly in their later retirement years,” says Lanta Evans-Motte, a financial adviser in Calverton, Maryland. “So they need to know whether they may have to actually come out of pocket to take care of their parents’ expenses.”
The costs of eldercare are far reaching. A 2006 study conducted by The PNC Financial Services Group found that 40% of those surveyed considered providing financial support to elder family members to be an important financial goal, and 20% were concerned about the cost of caring for parents. Some 20% of respondents reported that they spent an average of $6,700 a year on parents or in-laws.
Money spent caring for mom and dad is money not spent saving for your own retirement. “That would also impact what you’re trying to do now to save for college for your children,” says Lee V. Bethel, president of Comprehensive Benefit Services Inc. in Alexandria, Virginia, and board member of the National African American Insurance Association. “The pie can only be split in so many ways.”
But financial planning can make all the difference. If people with aging parents sit down early enough to discuss their parents’ future financial plans, there’s time to make any necessary adjustments. “You don’t want to ask a parent if they have life insurance when they’re 80 years old,” Bethel says. “You want to ask when they’re 60, when you can still get some at a reasonable price.”
BARRIERS TO COMMUNICATION
Recognizing the importance of such discussions is easy. Getting aging parents to disclose their financial situations may be far more difficult.