Retirement can be an idyll time or a struggle depending on how well you’ve prepared. For an increasing number of Americans approaching their golden years, mountains of unpaid debt threaten to undermine what should be a time for relaxing, traveling and enjoying the grandkids.
Four in five households approaching retirement hold debt, a ratio that has remained steady for several decades. In a 2013 report, the Social Security Administration said that the mean debt level for near retirees was $120,871 early in the decade, including $102,553 in housing debt, and exceeded $150,000 for all near-retiree households. That pulls down total retirement savings. The Federal Reserve reported that median net savings for those between 65 and 75 years old was less than $235,000, which includes home equity.
Debt forces a growing percentage of retirement-aged people to continue working. Though some retirees want to continue working, most do it because they need the income to make ends meet.
Reducing or eliminating debt can be an important step in crafting a viable retirement, yet many people have a hard time extracting the red ink from their balance sheets. If you have parents trapped in debt and nearing retirement, now is a good time to have a talk about the future. If they are already there and are starting to struggle with paying bills or making financial choices, your help could be critical.
Start a Conversation
The first step to helping your parents with debt is to open a line of communication. Approach the situation knowing what you want to say. Be honest, and show that you’re concerned about their well-being.
Make sure you have plenty of time and attention to give to the conversation. Choose a time when you can put other obligations on hold and focus on your parents.
If possible, plan to talk to them before they need help so that you can make financial plans together and avoid pitfalls.
Once you’re prepared to talk to your parents, consider how to approach them. Giving your parents advice likely will feel like a role reversal, and it is. When you were a child, they set the rules and gave the advice. Finding the right way to turn the tables can be challenging and uncomfortable, but if the conversation works, it can avoid big problems.
Remember that if your parents mismanage their money and sink deeper into debt using credit cards, the card companies can try to liquidate your parents’ estate after they die to recoup what they’re owed. Even while they are alive, the stress of growing debt can create tremendous stress. Your counseling and help can prevent this from happening.
If you feel awkward talking to your parents about their financial problems, try opening the discussion with a related subject. Mention an article you read or a news segment you watched about debt later in life, and take the conversation from there.
If your first conversation ends in a blow up or rejection, try again, remembering the hot-button topics that created the argument. Most people are defensive about their finances, and many parents simply aren’t comfortable sharing money issues with their kids. You should stress that it’s concern from them, and not what you might receive as an inheritance, that is motivating the conversation.
If you live near your parents and visit often, look for signs that they’re beginning to struggle with financial tasks that they once managed well. If they leave credit card statements and utility bills unopened, or if you become aware that creditors are calling, they’re probably having trouble.
Look for openings. If a parent talks about a growing amount of credit card debt, or says that his or her partner is starting to spend irresponsibly, consider it a call for help. Rather than criticizing your parents or suggesting that maybe they are losing their grip, make constructive suggestions. Once they give you an opening, the amount of help they’re willing to accept is likely to increase with time.
Lead by Example
A good way to start is talking about your own financial situation. You might mention that you recently had a lawyer draft a will, create a revocable trust and prepare a document with medical directives. You can use as a way of asking your parents if they’ve taken similar steps. You can also tell them how important having such documents in place is if they even can’t manage on their own.
This is also a good way to talk about debt. If you worked through a debt, or have a close friend who did, you can tell the story in a way that inspires your parents to confront their own balance sheet.
Listen to Their Needs
Your top priority in your discussion should be to make sure your parents have the means to cover necessities like food, home costs and health care. Your parents shouldn’t be doing without these items, and they shouldn’t need to rack up credit card debt to pay for them.
If your parents can’t cover their expenses you should step in right away. But be tactful. Your parents probably value their independence, and a sense of pride may make them hesitant to accept your assistance. Be gentle and calm in your demeanor, and ask how you can help meet these needs or find resources to help them.
Keep in mind that you often can help without offering financial support.
You may be able to help your aging parents in the following ways:
- Offer to help balance their checkbook or send monthly payments. This can go a long way if your parents have vision or cognitive problems.
- Offer to set up appointments for home repairs or to help with big purchases like a new car. Try to attend any meetings with sales people if you worry your parents are gullible.
- Offer to have your parents move in with you if they need help and cannot afford assisted living.
- Caution them about scam artists that prey on the elderly. Telemarketers and direct-mail operators often target retirees with financial offers or requests for donations. While some are legitimate, many aren’t. Putting your parents’ landline and cellphone numbers on federal and state do-not-call registries can help, but many con artists have found ways to circumvent the registries. You might consider writing notes and put them by the phone to remind them about hanging up or not answering anonymous calls.
- Suggest that you help your parents with routine financial tasks. Offer to assist them in keeping a written or computerized financial ledger. Be available to help them prepare documents during tax season. And encourage them to set up automated bill payments whenever possible.
- Get online access to their bank accounts and credit cards. This will help you track spending and make sure bills are paid on time.
- Always try to be there. Ask them to advise you if they are considering any major changes, like taking a reverse mortgage on their home to help make ends meet. You should review documents, seek advice and do research and help your parents avoid decisions that could hurt them financially.
These favors may seem more reasonable to your parents than allowing you to support them financially. If they won’t accept your financial assistance, smaller gestures may be the stepping stone they need to feel more comfortable asking for and accepting your help.
Help Create or Manage a Budget
Some people simply need help managing their post-retirement budgets. Their incomes change, as well as their expenses. Budgeting is an especially important issue if your parent is widowed and isn’t used to managing money. It is also important for individuals with costly health problems who may fall into medical debt.
A budget should include food, housing and other necessities, as well as money toward debt payments and some room for non-essentials like entertainment and eating out.
If too much of your parents’ income is being used to repay debts, it’s wise to consider debt reduction options like debt management, debt settlement and debt consolidation.
You should also review the type of debt they’re repaying. As with younger people, debt can be good and bad, though many argue that no debt is good when you live on a fixed income. Yet for those with more complicated finances, keeping a mortgage in retirement might have some tax advantages. Credit card debt seldom has any benefit and a budget for an elderly family member should be designed to pay off revolving debt as quickly as possible.
Talk to Your Siblings
Financially dependent adult children can put a further strain on struggling parents. Make sure you and your siblings are all financially independent. If your parents are struggling to pay their own bills, they shouldn’t have the additional burden of paying their children’s debts and student loans.
Wherever your parents stand financially, it’s best to speak with them early about the future of their finances. Find out how you can help them live comfortably and clear any lingering debts.
Get Outside Help
Even if your parents always paid their own bills or prepared their own tax returns, advancing age might make it difficult for them to continue managing finances themselves. This can be especially true if either parent begins showing signs of dementia.
Even if their thinking remains sound, you should encourage them to use outside help. Churches often provide tax services to older parishioners, as do senior centers, local governments and other social groups. You should become familiar with the services and accompany your parents to meetings with those offering services.
You can also use non-profit credit counseling and debt management services if your parents’ finances need remediation. You might even consider hiring a bookkeeper and tax preparer to help manage money and pay taxes.
Finding the right financial professionals and building trusting relationships can be as important to the elderly as finding the right doctors. You need to vet the financial people thoroughly to weed out scammers.