Planning for your own retirement is enough of a challenge. Combine that with aging parents that haven’t adequately prepared for their’s and the task is beyond overwhelming. When faced with the task of financial planning for elderly parents, where do you turn? That is precisely the question a client of mine brought to me. His father had recently died, and his mother now faced doing life alone. He came to me asking advice about how to make his mother’s money last for the rest of her life.
This isn’t just another hypothetical for me. This is life. A year ago I found myself confronted with this issue when my father abruptly and unexpectedly passed away. I know how hard it is to work for your mom. I also understand the anguish you experience as you try to provide them with a livable income for life, while still living on their own. It’s certainly no easy task, especially when you have elderly parents on a limited income.
In this particular situation, the mother was receiving Social Security Benefits and a pension. The pension will expire in five more years. While the father did have life insurance, that was roughly $150,000. The client wanted to make all of this money last for about 15 more years, which meant the mother would be about 90 years old at that point. We knew we were dealing with a minute figure, so we didn’t even attempt to go beyond 15 years. Her monthly income needed to amass to about $2000 a month.
Taking only the $150,000, forgetting everything else and utilizing it as income only gets us to just over six years. When we accounted for the other incomes, invested the money assuming a 5% return, we still could not get his mom beyond ten years taking out $2000 a month for living expenses. Obviously, past performance is not indicative of future results, and the returns could go up, or they could go down. There are so many variables to account for, but we chose to run the numbers at 5% just to get an idea of where she stood. She was easily going to erode every dime of this money well before she turned 90 years old.
I watched this client just fall apart in an instant. The somberness I felt as I watched his heart shatter into a million pieces knowing that all the financial planning in the world for his elderly mother probably wasn’t going to help. The life he wanted to provide for her was unattainable at this point. And he looked at me and said, “Justin is there any way possible to care for my mother for the rest of her life?”
I cannot honestly explain to you the hopelessness that entrenched me at that moment. I came to this conclusion based on this experience:
The first, which is the worst of all options, is the mother dies early. The thought of expressing that idea to someone working on the financial planning for elderly parents on a limited income is so distasteful. It’s just not what you want to discuss. No one ever wants to consider that possibility. Most everyone yearns to keep their parents around as long as possible.
Another alternative to consider is we could assume a higher rate of return. With that, we would have to carry a more considerable amount of risk — the risk of losing it all or a substantial amount — in order to invest more aggressively. If you lose all the money, then what? There was no fallback, and with such a small amount to work with this option seemed as dastardly as the last.
The most feasible of actions, spend less money. However, that recourse also carries a risk of its own. After all, once someone is accustomed to living life at a certain threshold, how do you then tell them to cut it back?
Knowing each of these were not really the answer he was looking for, I suggested he bring his mother in so that we could get a better assessment of what her income options truly were. While we as, children think we know everything about our parents, there are times that we cannot do the financial planning for our elderly parents, as comprehensively as they could on their own.
Fast-forward three months later, and I had the chance to meet with Mom. She was able to give a full rundown of everything involved. Luckily my client’s assumptions were slightly off. There was no need to take on an amount of excessive risk to make her money last. We simply maneuvered the distribution in a different manner, which meant we would change how we took the money in retirement.
So if you’re headed into retirement, or you’re doing financial planning for elderly parents in retirement, you can typically find ways to stretch a dollar. There are often many tactics available which can be leveraged. Some have positive effects, while others adverse effects. Nevertheless, all are still usable when it comes to financial planning for elderly parents —making sure they end up with the correct distribution in retirement can help provide lifetime income. My biggest word of caution for helping your elderly parents or even yourself— do not wait until it’s too late. And if you have questions, we would love to help.