Caring for an aging parent or loved one is one of the toughest challenges we face. Family caregivers help with shopping, coordinate health care, and manage finances, among other tasks. Caregivers juggle these responsibilities around full-time jobs, raising kids, and running their own household. This takes a toll on one’s physical, emotional, and financial health.
More Americans than ever provide care to a loved one. About 34.2 million Americans have provided unpaid care to an adult age 50 or older in the last 12 months. About 70 percent of these caregivers help a parent, in-law, or another relative1.
As our loved ones get older, they can easily deplete their retirement savings to pay for medical care, prescriptions, and daily living expenses. They worry about outliving their savings. Sadly, they don’t share their feelings until it’s too late.
“My parents and in-laws came from a generation where you don’t talk about finances,” says Diana Rogers, a reverse mortgage specialist with Finance of America Reverse LLC. “They kept the cards close to their chests. It was hard to get an idea of actual numbers to help them make good decisions.”
Understand the warning signs
How do you know if your parents need financial help? Look for one major red flag: changing spending habits.
Your loved one may suddenly pull back or dramatically increase spending. If your parents suddenly stop spoiling the grandkids with gifts, there could be a financial reason. If a frugal parent buys a new car or some other flashy purchase, it may signify slipping financial skills.
If you notice a significant change in spending habits, it’s time for a heart-to-heart financial talk.
How to have “the talk.”
Caregivers may have never talked to their loved ones about finances before. Broach the subject gently. Start with safe topics, such as health insurance, before discussing money.
If your loved one confides financial worries, help him find a solution. Here are a few ways to help your loved one free up more cash:
- Review their budget. With so many introductory offers and package deals on the market, you may be able to help your loved one cut telephone, cable, and Internet costs. If your loved one has credit card debt, make an aggressive plan to eliminate it. “No senior should have credit card debt,” says Rogers. “If they’re not paying off that card each month, the family needs to get it off the table.”
- Meet with a financial planner. A financial planner can help your loved one determine how to best allocate 401(K) investments, reduce debt, and otherwise organize finances.
- Use your own savings. This is a possible solution if you have the savings to give without sacrificing your own retirement funds and quality of life. Not many of us have this much disposable income.
- Move the parent in with you. The proceeds from the sale of the parent’s home could go toward paying off debt, renovating your home to accommodate any physical limitations, or hiring additional help. But would your loved one be happy? According to AARP, 87 percent of adults age 65 and over want to stay in their current home as they age.
- Take out a reverse mortgage. A reverse mortgage allows loved ones to tap into their most precious asset—home equity—to supplement retirement income.
Available exclusively to homeowners and homebuyers age 62 and older, a reverse mortgage provides a steady stream of tax-free* funds. Your loved one can take the proceeds as a line of credit, as a monthly income stream, or as a lump sum. She won’t have any monthly loan payments as long as she stays in her home. She remains responsible for taxes, insurance, and other property charges. The extra income can help your loved one get back on a positive financial track.
A reverse mortgage sounds intriguing. What now?
If a reverse mortgage seems like the right choice, research diligently to understand the loan terms, tax implications, and why it’s a smart solution for your loved one. “The caregiver needs to understand how a reverse mortgage works before they talk to mom and dad,” says Rogers. “When it makes sense to them, they can help it make sense to the parent.”
The caregiver also needs to educate siblings—especially siblings worried about an inheritance. “They should understand if their parents save thousands in house payments, it’s better for everyone,” says Rogers. “You have to help them see the whole picture.”
“It doesn’t matter if you’re rich or struggling,” says Rogers. “A reverse mortgage just makes sense.”
To find out more about how a reverse mortgage can help your loved one, visit Finance of America Reverse’s caregiver resource page.
- “Caregiver Statistics: Demographics.” Family Caregiver Alliance, National Center on Caregiving, accessed November 15, 2016.
* Not tax advice. Consult a tax professional.