For many Americans, needing help
with the management of finances at some point during retirement is not a matter
of if, but when.
Even though most seniors don’t
want to imagine running through retirement savings and being unable to manage
their money, they are likely to experience it, according to a new study by
Fidelity Investments. The report found that 60% surveyed admit having witnessed
it happen to a friend or family member—and 40% actually helped manage their own
parents’ finances.
“The possibility of losing
financial independence is something for which we all need to plan,” says
Suzanne Schmitt, vice president of Family Engagement, Fidelity Investments.
“That’s why it’s important for families to be in sync about what needs to
happen in the event it’s necessary to help take control of financial
decision-making for a loved one. By engaging in conversations now and having a
strong support system in place, families can help loved ones gracefully
transition into that next phase of their lives.”
Fidelity writes, “For many
Americans, needing help with the management of finances at some point during
retirement is not a matter of if, but when—especially since studies show that
financial decision-making peaks around age 53 and gradually declines, even
among healthy individuals. Moreover, 60% of older adults worry about burdening
their families with the task of managing the finances. However, eight in 10
adults say they are eager to be involved in the process of helping their
parents manage their money in retirement.
Three-quarters of older Americans
surveyed say it’s very important to maintain the ability to manage day-to-day
finances. In contrast, less than half place a similar importance on managing
investments. Fidelity argues that this suggests family involvement might
initially focus on financial matters with a long-term horizon, such as
investments and one’s estate, and gradually shift to more sensitive issues
involving health care and day-to-day spending.
The firm points to three “tipping
points” that adult children should be aware of that may signal the need to
step-in and get involved in a more direct fashion with the finances: When a
parent or loved one makes a direct request for financial assistance, when age
starts to become a significant factor, or when parents turn 75 years old—this,
on average, is when children step in and let parents take the financial
planning backseat.
But they may need to steer their
parents in the right direction even sooner.
“The process of comfortably and
thoughtfully moving from independence to interdependence is critically
important,” says Schmitt. “Well before a tipping point has been reached,
families need to be prepared and make sure they have a transition plan in
place—and the good news is, there are several benefits to building a strong
family financial safety net. Doing so allows parents the ability to maintain
their current lifestyle for as long as possible, helps them preserve their
assets and may increase the likelihood they won’t fall victim to fraud. Best of
all, most parents appreciate the assistance, so it can help forge stronger
bonds.”
The firm says that by the time
someone turns 50, he or she should make sure to have the basics in place:
designated beneficiaries on bank accounts, investments and insurance policies;
a current and complete will; a healthcare proxy; and a living will. All legal
documents should be scanned, stored in a safe place and shared with loved ones.
Fidelity's Independence Myth
study is the result of online interviews with 1,043 adult children and 1,024
older adults between October 2015 and June 2016. Adult children had to be at
least 30 years of age with a living parent at least 60 who had a minimum of
$500k in assets and worked with a financial adviser. Older consumers ranged in
age from 50 to 80, had at least $500k in assets and worked with a financial
adviser.
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