The wild card in your FIRE plans: Your parents
Without a doubt, Doug Nordman has his financial act together. I know this because I’ve interviewed him several times for articles I’ve written about early retirement.
He retired at the age of 41 after 20 years of service with the U.S. Navy submarine force by saving more than 40% of his income. He shares his knowledge about achieving financial independence on his blog, The Military Guide. And he has even published a book that shows veterans how to retire on their own terms. As I said, this guy has his financial act together.
But even money-savvy FIRE folks like Doug can make mistakes. Doug made one that had a toll on him both financially and emotionally: He didn’t have conversations soon enough with his dad about his dad’s finances.
I know you’re wondering how that’s even a mistake.
After all, why would our parents’ finances be any of our business? Who could blame Doug for not having money talks with his dad?
I can tell you that Doug blames himself for the fallout that happened because he didn’t push his dad to share details about his finances and get essential legal documents drafted.
The burden of dementia
Doug’s father started showing signs of dementia in 2008. When Doug saw that his dad was having trouble remembering things, he asked whether he needed help with anything – such as balancing his checkbook – or getting a power of attorney document drafted.
His dad said, “No,” so Doug dropped the subject.
Then, in 2011, Doug got a call in the middle of the night from an emergency room surgeon who said Doug’s dad had been brought in with a bleeding ulcer. Doug flew from his home in Hawaii to Colorado, where his dad was.
Then Doug and his brother had to scramble to find a nursing home where their dad could recover. The real problem Doug ran into, though, was that he couldn’t access his dad’s bank account to pay his bills because his dad had never named him power of attorney – someone who is legally designated to make financial decisions for you if you can’t.
Doug ended up spending $10,000 and nine months going through the legal process to become his dad’s conservator. During that time, he also spent $25,000 paying his dad’s medical and nursing facility bills out of his pocket because he couldn’t access his dad’s financial accounts to get the bills paid.
I learned this story when I was interviewing Doug for my book that came out June 25 – Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances.
As Doug told me about the financial toll this situation took, “I can’t imagine doing this if I didn’t have my own financial act together. You can’t just go out and spend $25,000 for a medical emergency.”
Certainly, being able to care for an aging parent is just one of the many great reasons to become financially independent and retire early. But providing care or having to help out a parent financially could throw a wrench in your FIRE plans if you haven’t taken these scenarios into consideration. Doug did have enough of a financial cushion to pay his dad’s bills, and he was able to get reimbursed once he gained legal access to his dad’s bank account. But he wouldn’t have even ended up in that situation if he had had financial talks with his dad and prepared for worst-case scenarios.
Your plan for early retirement might involve selling your home and traveling full time – as Steve does. But you might have to say goodbye to that plan if your mom has a stroke and you have to take care of her full-time. Or you might have saved enough to get yourself through early retirement, but you certainly don’t have enough to spare to help out your parents financially.
However, if you talk to your parents sooner rather than later, you can find out where they stand financially and what sort of support you might have to provide them so that you can factor that into your own financial planning. Here’s what you need to know about having conversations with your parents about their finances based on tips from my book, Mom and Dad, We Need to Talk.
Money Talks With Your Parents Can’t Wait
In case Doug’s story didn’t sink in, let me say it again: You need to talk to your parents about their finances before they have health problems, show signs they need help or actually ask for help.
If you wait until an emergency strikes to talk to your parents about their finances, emotions will be running high. Trying to talk about money matters will make a difficult situation even more stressful. It’s so much better to have these conversations when your parents are healthy so you can talk about “what if” scenarios and make a plan for dealing with them. And you can ensure that your parents have all of the necessary legal documents in place that would allow you or another family member to step in and make financial or health care decisions for them if they no longer can.
The Conversation Won’t Be as Difficult as You Think
People often say that they’re afraid to have this conversation because money is such a taboo topic. But you need to realize that your fears about talking to your parents about their finances are probably overblown. These are your parents after all. They’re not going to stop loving you just because you ask them to have a conversation about their finances.
Plus, if you make it clear that you’re asking about their finances out of concern for their well-being, they will see that you have their best interests at heart.
The Conversation Should Be Planned
Conversations with your parents about their finances can happen naturally. But even if you are able to broach the topic casually, you should set a time to have a more in-depth discussion – or a series of discussions – with them to gather details about their finances. Ask them what a good time would be for them to sit down with you to have the conversation, then make it a date to talk.
Use a Story to Start the Conversation
One of the best ways to start a conversation with your parents about their finances is to use a story. For example, you could use Doug’s story to illustrate what happens if you don’t have essential legal documents and financial discussions before emergencies strike. Or maybe you have a friend whose parent died without a will and there were family fights over who got what as a result. This could open the door to discussions about the importance of estate planning.
Another way to start the conversation is to ask your parents about “what if” scenarios. What if you ended up in the hospital and I needed to make sure your bills got paid? What if you need long-term care? What if something happened to you and Mom is on her own? Hopefully, by asking these sort of questions, you’ll get your parents thinking about what sort of planning they need to do and how you should be involved in that planning.
Gather Details About Your Parents’ Finances
If your parents are willing to have money talks with you, start by gathering basic details about their finances, such as whether they have a will, power of attorney, advance directive and how they pay their bills. Then ask for more detailed information such as their sources of income as well as types of debt, investment accounts and insurance policies they have.
Also, find out whether your parents are counting on you to care for them. This could impact your finances or your early retirement plans. If possible, encourage your parents to look into long-term care insurance or meet with a financial planner to figure out if they can afford care on their own. They can find a long-term care insurance broker through the American Association for Long-Term Care website, www.aaltci.org.
Take notes about their finances as you talk with them. Or ask your parents to write down information about their accounts for you, store it someplace safe and tell you how to access it if you ever need it to help them.
Don’t Get Discouraged
Your parents might be reluctant to share details about their finances the first time you try to talk with them. They might change the topic. They might tell you that their finances are none of your business. But the truth is that their finances are your business if you ever have to step in and help your parents out – or deal with what they’ve left behind when they’re gone.
It could take several attempts before they understand why you want to discuss their finances with them and are willing to open up to you. It might even require a third party – such as a financial professional or trusted family friend – to help facilitate a conversation. Keep trying different approaches, and, hopefully, your parents will recognize how important it is to you to have this conversation.