Personal finance really family finance
Personal finance has always been a family affair that involves the interests of children, parents and other relatives. Currently, many trends exacerbate situations where relatives’ assistance is needed, which makes family situations increasingly challenging and difficult to plan for.
First, expanded life expectancy brings expanded financial challenges. A longer life does not only imply greater retirement costs, but also greater odds of runaway medical and long-term care expenses. Couples retiring today at age 65 are expected to spend an average of $394,954 over their lifetime on out-of-pocket medical expenses (excluding long-term care), according to a HealthView Services report.
Divorces later in life are increasingly common. The divorce rate for Americans over age 65 has more than doubled since 1990. Today, 25 percent of people divorcing are 50 or older and 10 percent are 65 or older, according to a Washington Post article.
More surprisingly, Americans over the age of 60 have seen their student loan debt grow at the fastest rate of any demographic group over the last 10 years, according to data from the Federal Reserve Bank of New York. Already, 3 percent of households headed by someone age 65 or older are affected by an inability to repay such loans. That trend is also expected to grow. And sadly, Elder fraud is a common problem. Recently, 68 percent of CPA financial planners surveyed reported encountering cases of elder fraud a few times a year.
Going from sad to worse, elder fraud is expected to grow as more seniors reach a point in life when cognitive decline makes them vulnerable. Seniors’ adoption of technology such as email, social media and online accounts makes it possible for criminals located anywhere to defraud them. Overall, retirement is an obstacle course growing longer and tougher.
As such, we shouldn’t be surprised that a survey of CPA financial planners, many of whom work with high-net worth individuals, indicated that the top retirement concern for their clients is running out of money (57% identifying it as the No. 1 concern).
CPA financial planners also report that unexpected events affect a growing and significant number of clients. These events include long-term health care (impacting 42 percent of clients), caring for an aging relative (28 percent), diminished capacity (26 percent) and adult children returning home (18 percent).
Of course, these so-called “personal” finance trends affect extended families. For example, a survey by the American Institute of CPAs (AICPA) showed that nearly 15 percent of Americans were delaying major life decisions due to the need to care for elderly parents or other relatives.
Readiness for the dynamic mix of family issues starts with being informed and realistic. Such issues are often overlooked and easily dismissed. For example, pre-retirees often fail to consider long-term care insurance because they erroneously believe Medicare covers it or that the risk is insignificant.
In reality, almost 70 percent of people turning age 65 will need some long-term care, according to longtermcare.gov. About 80 percent of care at home is provided by unpaid caregivers who may be a family member or friend. On average, caregivers spend 20 hours a week giving care.
Such facts provide trends their rightful scope and help avoid two common traps: oblivion and wishful-thinking.
So, a good idea for anyone would be to add personal finance topics to their summer reading list. Need a place to start? The AICPA provides a free personal finance report-card to help assess your financial circumstances. Simply Google “AICPA consumer personal finance report card.” It will help identify areas where additional information and resources might help you and your family.
Also, take a look at www.360financialliteracy.org, which is a national volunteer effort of the nation’s CPAs to help Americans understand and improve their personal finances
By the end of summer, you’ll be prepared to start a conversation and share information, concerns, and suggestions with your extended family. From there, expand the conversation to include the members of your relatives’ financial tribe: Successor trustees, guardians, executors, trust-protectors, power-of-attorney designees, key professionals and relatives and friends who’d swing into action if needed.
Initiate communication among tribe members so they know each other, understand the family’s circumstances and contribute to the preparedness conversation. Personal finance quickly becomes family finance.
Therefore, it makes sense to plan it that way rather than wait for events — often undesirable — to force a change of outlook and bring missed opportunities into focus.
• Jean-Luc Bourdon, CPA/PFS, is a wealth advisor and principal with BrightPath Wealth Planning, LLC in Santa Barbara.