By Andrew Housser
For many people, as they age, the term “golden years” may be a misnomer. More and more people are struggling with debt, due to the combination of the recent economic recession, lower income as they age, and increasing health costs.
How tight are budgets? Among those older than age 75, nearly 40 percent lived below 200 percent of the poverty line in 2009, with annual income of less than $26,000 for a couple. And older people are going deeper into debt: In 2007, the most recent year with data available, people over age 55 had a median debt level of $43,000. That is 170 percent higher than in 1992. In 2007, families with a head of household age 75 or over spent 7.7 percent of their income paying off debts.
If you are concerned that your parents might be struggling with debt, here are some suggested ways that you can start to help them get a handle on their financial problems.
1. Open the lines of communication.
Begin talking with your parents about their finances before they need help, if possible. Some families find it easier to open a discussion by mentioning an article they read on the subject, for example. Or you can ask in the context of a current event. It can be awkward to discuss your parents’ finances, but if you assure them that you are only wanting to be sure they are taken care of, you can start the conversation.
2. Determine the need.
Once communication is open, you can start to determine if your parents are in need of help or not. The first step is to ensure that your parents have food, shelter and health care. Especially if you suspect they are charging these expenses to credit cards, or going without, ask if you can help with these costs, within your means. Or help them find other resources to help.
3. Check that they are comfortable managing their money.
Many people have trouble managing their budget after they retire. Even people who live frugally might find that they simply cannot make ends meet. Other people face real challenges after they are widowed. If the spouse who handled the bills dies, the widow or widower might have difficulty coping with their finances on their own.
4. Decide on how much you can help.
If your parents are in need, are you able to assist them financially? If so, how much? Can you help with long-term care or medical costs? What about the cost of paying off debt? Can you help an elderly parent pay for the cost of assisted living, or would you prefer your mother or father live with you if they need support? Make a personal plan, together with your spouse and family if appropriate, to set boundaries that will let you help your parents, while not going into debt yourself to do so.
5. Stand on your own two feet.
Some adults are concerned about their parents’ financial lifestyles, but meanwhile, their parents are still helping to support them. A good step to help parents live within their means is to ensure that they are not still funding adult children’s lifestyles. Do not rely on your parents to pay for your education, student loan repayment, care payment, rent, utilities or other costs of living. Discuss this topic with your siblings as well. To go a step further, if parents are paying off a son or daughter’s student loan, or a parent loan taken out for the child’s education, talk with your parents to see if you can take on some or all of payments to ease the burden.
6. Consider medical expenses early.
A huge issue for aging people is the cost of health care. Be sure your parents apply for Medicare close to their 65th birthday. Find out if they have long-term-care insurance, and if not, if it makes sense for them to purchase it (it is less costly the earlier you purchase it). It is also possible for children to purchase insurance for their parents, or save money in a dedicated account to help with this expense later on.
7. Understand implications of debt on your parents’ estate.
Don’t panic if your parents have credit card debt. This is not license for them to build up credit card debt, but do understand that, to the extent the estate cannot cover the debts, children will generally not be liable for the debt after they die. (Laws vary by state, but typically, debts are paid by the estate after a death.) The major issue caused by debt is your parents’ quality of life and level of worry during their lifetime.
8. Be cautious about co-signing on debt with your parents.
If you co-sign a debt arrangement, and if your parent does not repay the debt, you will be liable to repay it in full. As such, approach this decision with a full understanding of the facts and the risks.
9. Get outside help if needed.
Some families find it is preferable to hire an outside bookkeeper to help parents with their financial management — and maintain their privacy. Other families divide and conquer, splitting up responsibilities among siblings or other relatives. Community organizations, from churches to nonprofits to social services organizations, also might be able to help with subsidizing bills, providing food assistance, or offering community resources. If your parents own their home, a reverse mortgage can sometimes help, allowing them to use some of their equity to fund living expenses now. Take the time to research your options and find help that works for your family.
10. Consider other means of help if their debt is overwhelming.
If parents are unable to pay their debt, are keeping lights off or skipping necessities to pay debt, or are dodging collections calls, you might need to investigate alternatives together. Many potential solutions exist for people struggling with credit card debt. Some people might qualify for a debt consolidation home equity loan. Others might benefit from debt management programs that can offer interest rate reductions, or debt settlement (also known as credit advocacy) for those in need of significant payment relief and principal reduction.
Whatever means you choose to help elderly parents resolve their debt problems, it is well worth opening the conversation with them. By helping them find better financial footing, you can both find peace of mind, and help make those later years “golden” after all.