Talking to your parents about their future can be tough, but a difficult conversation can quickly become even more fraught when you realize that your parents will need financial support to take their next step.
According to a report from Pew Research Center, among adults with at least one parent age 65 or older, 28% say that in the preceding 12 months they helped their parents financially.
How much does caring for aging parents cost?
The level of financial support aging parents need varies and can grow over time. Your parents may currently be able to live on their own with just some help with lawn care, meal preparation, and housekeeping. But they could be facing other circumstances, that require more assistance. They might need home renovations to age in place more comfortably, they may need full- or part-time in-home care, or they may even need to be in an assisted-living facility or nursing home.
The expenses associated with all of these possibilities can really add up. A 2018 survey from Genworth looked at the cost of care across the nation and found:
- Homemaking services, such as house cleaning, cooking, and running errands, average $4,004 per month.
- Home health aides, who offer more extensive personal care, average $4,195 per month
- Adult day care, which provides assistance and supervision during the day, averages $1,560per month
- Assisted living facilities, which provide living arrangements, personal care, and health services for people who need help with activities of daily living, average $4,000 per month
- Nursing home care for people who need a higher level of supervision and care, averages $7,441 per month for a semi-private room or $8,365 for a private room
Even if your parents aren't in need of a high level of care right now, it doesn't hurt to start considering the possibility. You don't want the first time you broach this subject to be when your parent is in immediate need. It's best to have a plan in place long before the need for assisted living or round-the-clock care comes up.
Where should the funds come from?
In an ideal world, your parents would have enough retirement funds set aside to cover their living expenses and medical costs as well as insurance to cover their long-term care needs. Of course, realistically, not everyone has enough retirement savings and purchasing long-term care insurance isn't always an option. The American Association for Long-Term Care Insurance recommends enrolling in your mid-50s, as long-term care insurance premiums and the percentage of applicants declined for health reasons increases with age. If your parents are already over the age of 60 and in poor health, they may be denied coverage or the premiums might be cost prohibitive.
The good news is you or your parents may have access to another asset that can help cover future costs – home equity. Many older adults have a large portion of their net worth tied up in their homes. According to the last census, home equity composes 66 percent of the net worth of people aged 65-69, 70 percent of the net worth of people aged 70-74, and 76 percent of the net worth of people over the age of 70.
Tapping into home equity
Some older adults may be hesitant to tap into their equity because they intend to pass their home on to children or grandchildren, but for older adults with substantial equity and not enough liquid retirement savings, using their home to fund retirement can be a sensible move.
If your parents aren't homeowners – or don't have enough equity in their home to borrow against – you might consider using your own home equity instead. Interest rates on home equity loans are typically lower than the rates available from other financing options, such as credit cards or personal loans. However, keep in mind any time you use your home as collateral, you run the risk of losing it if you run into financial troubles.
Plus, the need to help care for elderly parents often comes at the same time you're saving for your own retirement or raising children. You may want your equity to cover home improvements or for a down payment or you may need it to fund your own retirement, cover unexpected medical expenses, or help your children with college costs. For these reasons, it's financially prudent to have your parents cash out equity in their home before tapping your own.
Even if your parents are in good health now and are able to cover their own financial needs, their situation could change gradually or suddenly. They might outlive their retirement savings or face a sudden illness or injury that creates a need for a higher level of care sooner than expected. Even a little advanced planning will ensure if there is an emergency, you can focus on your parents' physical and emotional needs rather than scrambling to deal with the stress of financial decisions.