3 Smart Ways to Protect Your Parents' Money

Money expert Carmen Wong UlrichThe number of adults taking care of aging parents has tripled in the past 15 years, and a recent survey by caring.com shows that 42% of family caregivers say they're spending more than $5,000 a year caring for an aging parent. That's a lot of green. Now, money in itself is a touchy subject for most families; add to that the dramatic role reversal that can occur as our parents need our care, and you've got a very tough topic. Here, money expert Carmen Wong Ulrich helps make it a bit easier to have the talk and ensure parents' financial health with three strategies:

Mistake: Ignoring your parents' budget

If you don't know whether your parents are keeping up with their expenses or what kind of income they are living on - and the size of their nest egg (if they even have one) - then it's time to go on a fact-finding mission so you can help them avoid financial trouble.

Move to Make: Do some research about your mother and father's finances

First, break the ice by talking about your own budget: "We've had to adapt our budget a bit due to the economy.... How are you doing? Are things the same every month?" This worked swimmingly with my own normally tight-lipped 70-year-old father, who was more than happy to dish.

Monthly income is an important starting point. Ask them, "What are your Social Security payments?" for a solid budget baseline. And ask, "Are you drawing the same amount from your retirement savings every month?" Upticks in withdrawal amounts could mean they're falling behind financially. Also ask about any other sources of income, such as a pension or other state or local benefits. At a site of the National Council on Aging, benefitscheck.org, you can find out if your parents would qualify for any assistance they may not have thought of in paying for expenses such as health care, heating and cooling, cell phones, and food. These questions will guide you as to what funds your parents are pulling from every month.

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Next, run through your parents' bills with them to see if they are in the red every month or if they're breaking even. The script for navigating bills without simply seeming nosy varies. You could offer a helping hand: "Mom, I found a new system I love for organizing my bills - can I share it with you?" Or, if that might be a minefield, try commiserating: "My phone bill jumped a lot this month - what about yours?"

If you find that your mom and dad are losing ground each month, focus on the culprit and create a plan. Is overspending to blame? If so, help them cut back with advice from AARP (go to aarp.org and search for "99 great ways to save"). Is the issue too little savings or a big drop in the value of retirement investments, meaning a lower income? Before you get ready to dole out any cash, ask if your parents work with a financial adviser or planner. If so, ask if you may attend the next meeting. If not, it could be very worthwhile to sit down together with one, even for just one session ($150 and up) in which you could create a focused plan for tweaks to make. To find a certified financial planner (CFP) near you, you can head to the website fpanet.org; visit adviserinfo.sec.gov (the U.S. Securities and Exchange Commission) to check advisers' backgrounds.

If credit card debt is an issue, guide your parents to nfcc.org (they can also call 800-388-2227) to find a nearby nonprofit credit counselor; join them in a meeting to see what inexpensive options could help pay off their debt.

Also offer to call up lenders yourself to get them to lower interest rates and/or consolidate accounts. Yes, this requires time and effort on your part, but becoming your parents' advocate when it comes to debt actually benefits all of you.

Mistake: Not knowing just how expensive health care for seniors can be

The biggest bill your parents may ever see is the one for their health care. The Employee Benefit Research Institute (EBRI) reports that a couple who are 65 today will spend nearly $300,000 on health-care premiums and out-of-pocket expenses if they live into their late 80s and take a lot of medications. But, you might ask, doesn't Medicare kick in at 65 and cover everything? Nope, it certainly doesn't. EBRI estimates that Medicare covers only 51% of costs; seniors have to come up with the rest from their bank accounts or via their supplemental insurance.

Move to Make: Research their health-care resources

If your parents are over 65, head to medicare.gov and click on the Medicare Basics tab. This will give you (and your parents) a full overview of what's available to them. In addition, visit mymedicare.gov, an enrollment program that helps recipients track expenses and services. If your parents are under 65 and need insurance coverage but can't afford it on their own, go to medicaid.gov to see what their state offers. As of January 14, 2014, all adults with incomes below $14,484.10 may be eligible for Medicaid. (If your parents don't qualify, they can still get free one-on-one counseling on getting health-care insurance if they go to shiptalk.org.) Also encourage your parents to have regular checkups and preventive tests. This can save them not only money, but time and discomfort as the years go by, through detecting and even staving off debilitating (and expensive) illnesses and complications.

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Long-term care can include both individual care and rehabilitation expenses (such as nursing home costs) for chronic conditions or illnesses. Our government estimates that almost 70% of people over 65 will require this type of care. For folks over 60, the cost of long-term care coverage can be unaffordable. But if you are looking on your parents' behalf, many states have options called partnerships for long-term care that are a good value. On the Internet, search for "partnership for long-term care" with your state's name to find links to local resources. Also, you can find some low-cost local options for in-home care at eldercare.gov.

Mistake: Not being savvy about financial products targeted to seniors

Seniors reportedly watch more television than any other age group - more than 200 hours a month on average! And many of the advertisements they see are for services and products geared toward them, such as reverse mortgages, that may be of questionable value.

Move to Make: Protect them from sneaky sales pitches

Some TV commercials in heavy rotation tout reverse mortgages to seniors; these mortgages turn home equity into a loan that can be distributed in different ways, such as via a lump sum or monthly payments. Know that just like regular mortgages, these come with fees and other costs, possibly including high commissions.

Here's my advice on how to broach the topic: You can casually say to your parents, "Have you seen those reverse-mortgage ads that seem to be running all the time? Please check in with me if you ever consider anything like that. There may be better options for you." Also know that the Federal Housing Administration (FHA) directly offers Home Equity Conversion Mortgages (HECMs), which are low-cost reverse mortgages. For more information, go to hud.gov and type "reverse mortgage" in the Search box.

Another option, should your parents need access to more cash and want to leverage their home's value: See if they can refinance their mortgage at a lower rate with a HUD-approved counselor. If they've had a fixed-rate mortgage, they may be able to significantly lower their monthly payments, thereby freeing up more of their funds for other purposes. Bottom line: Fully investigate their options, together.

- By Carmen Wong Ulrich

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