What to do when aging parents need help with financial decisions? Here’s some advice

Demographic trends show that the size of the U.S. population over age 65 is increasing compared to younger ages. More people live longer than ever before, and it has an important influence on family relationships, including how families interact about personal finances. While these trends shift slowly over decades, in my experience, an outcome that has become more prominent is the number of people who are asking how to help their parents manage their financial lives.

Cognitive decline impacts everyone but at a varying pace. Knowing when to help parents is a sensitive and sometimes challenging decision. Given the importance of prudent financial decisions to maintain lifetime financial security and the growing incidence of scams, fraud, and cybercrime targeting seniors, it’s an important family discussion needing proactive attention, not reactive damage control.

Physical and mental health considerations are paramount. However, financial health and planning to understand “if there will be enough” should be at the core of multi-generational family discussions.

Understanding the needs and preferences of your parents might reduce anxiety for them and you as you help guide them through decisions about their life and their money. Money often comes with emotions and behavioral biases that could make discussing it difficult.

Encouraging communication and information sharing about health and finances could be important, not always to take immediate action but to establish a foundation of understanding where help might be most beneficial in the future. It also provides a baseline of comparison to monitor how things are changing in your parents’ decision-making, emotional state, reaction to events, and other factors.

The approach to a more proactive discussion comes in two forms, observational and insight-seeking through questions and review of important financial matters. It could be helpful to familiarize yourself with your parents’ needs, medical care, social circle, activities, and budget. Monitor for forgetfulness, confusion, and unexpected behavior or decisions, such as making too many investment transactions and responding to news or “hot tips”.

You could organize interactions or steps to understand into three key categories – financial, insurance and legal.

Financially, you should understand their income sources and whether there is expected to be any change in that income. Could they live comfortably on their income for life? What are the investments or savings account balances if they need more than their ongoing income to cover expenses? Is their investment strategy prudent given their needs now and projected for the future? Do they need to revise investments to generate more income and be less growth-focused? Is the tax return being filed appropriately? Are quarterly estimated income tax payments being maintained, if applicable?

Is it possible that you and/or your siblings might need to provide financial support? How would you decide if, and when, to contribute to your parents’ expenses? Are you in a position to provide that support without harming your own long-term goals and financial security?

Regarding insurance, it would be helpful to understand how they’ve navigated Medicare and the variety of health insurance supplemental coverages. Also, is there any separate coverage for chronic long-term care or life insurance that might have cash value or riders to help cover long-term care? It is common for parents not to want to leave the family home, regardless of the detriment it could cause. It might be in their best interest, however, as separation and loneliness are known to increase dementia risks.

Regarding legal arrangements, do they have wills, trusts and power-of-attorney documents for health care and financial matters? Wills are used in the case of death, whereas healthcare directives are legal documents to communicate your parents’ wishes for health care if they cannot communicate. Writing such a directive would help them keep control of their lives and what happens to them in the case of an emergency. You and other family members should know the location of such documents.

Often, investment custodians and banks require their own power-of-attorney forms. If there is wealth that is likely to outlive the parents, there is likely a need for proactive estate planning decisions while they are living rather than waiting for a will/trust to define the transition after death.

Answering these questions might require joining a meeting with their financial advisor, accountant, or attorney to understand current plans, ongoing strategies, and flexibility if circumstances change. At these meetings, ask for your parents’ permission to have the financial professionals share details or concerns with you. They might be among the first to notice cognitive decline via repeated questions, redundant emails or phone calls, hyper-focus on single issues, or continual reference to past events.

Proactive planning requires time and effort, but it could reduce or eliminate significant headaches in the future.