Or…you can just strike oil

Laurie MacNaughton [506562] © 2017

When I was little I played house. I played school. I played orphan, pilgrim, mommy, fairy, and – as we called it then – Indian. In another nod to the political incorrectness of the time, my sister and I once played Siamese twins by tying ourselves together using my father’s neckties. Notice…”once.”

But never among the roles my siblings and I played did we include “adult child of an aging parent.” I didn’t see this role in the families I knew nor did I read about it in the books I read. In fact, the role wasn’t really much of a “thing” back then – and by “back then” I mean the 1970’s.

Fast forward: today most of us are either dealing with aging-related issues as they impact ones we love, or we have friends who are. And, typically, chief among the issues is the financial cost of care.

This Saturday past I met with an impressive couple in their lovely home. Both retired medical doctors, they did everything right – saved, lived within their means, engaged in a healthy lifestyle. But now, though only in their late-seventies, they’re beginning to worry their retirement savings may not be sufficient.

So what’s the deal here? How could a solidly upper-middleclass couple have made a significant dent in their savings ahead of schedule?

Easy: they’re bankrolling the wife’s 96-year-old mother. And in this case, though Mom is advanced-elderly, she’s by no means at death’s door. From all appearances, she could live another five years, maybe more. She’s not going back to work, however, and she long ago exhausted her own retirement savings. That means her daughter and son-in-law are probably looking at several more years of providing for Mom – and Mom’s care costs are unlikely to decrease over time.

Scarcely does a week go by that I don’t see some variation on this same theme: a couple who indeed planned appropriately for retirement, but was thrown a curve ball in the form of financing a relative’s longevity. Good health insurance is not a cure, as insurance doesn’t pay for many goods and services attendant with aging, and family typically foots the bill for non-medical sundries.

We hear a lot about a sustainable drawdown of retirement savings. But the not-uncommon situation I’m describing is a double drawdown, meaning the retired couple is funding their own retirement and a parent’s longevity. If the couple also goes on to enjoy a long life, they are likely to need someone to step in to help finance them. You can see a multigenerational impact in the making.

I hasten to add I was privileged to assist in the care of my parents, both of whom died of cancer a few years back. However, I am still in the workforce, and consequently did not experience a drawdown of my retirement funds, let alone a double drawdown. At least not on the surface.

Look a little closer, however, and there was a very real long-term financial cost: every dollar I spent flying to Arizona to spend weekends with my parents was a dollar I was not putting into retirement savings – and transit costs barely scratched the surface of my expenditures. Don’t get me wrong: I wouldn’t have traded those months with my parents for all the 401(k)’s in the world. But the point remains: the financial reality of caring for aging parents carries a long-range impact.

So what’s the cure here? Well, one is what J. Paul Getty said, namely, “Rise early, work hard, strike oil.” Sign me up.

For the rest of us, there are several things financial professionals recommend, including  becoming a lifelong saver – meaning continuing to save even once you’re receiving Social Security or other retirement benefits. Increasingly I hear financial advisors say they’re incorporating aging-parent care-costs into discussions even with younger clients.

But here’s also where a discussion of reverse mortgage comes in. Along with many others, when I first heard the term I assumed reverse mortgages were some shady mess cooked up in the back alley – and there’s a historical reason most of us think that. However, the modern reverse mortgage is an FHA-insured home equity line of credit designed to give homeowners access to some of their home’s equity, while not creating a monthly repayment obligation.

Reverse mortgage is going to play a role in the long-term financial well-being of many boomers as they age. Furthermore, if boomers’ parents are homeowners themselves, the parents’ reverse mortgage can help fund their care, taking some of the financial burden off adult children. Indeed, over the years I have done several “twin” reverse mortgages – one for the adult children and one for the advanced-elderly parent.

With longevity increasing, none of us is likely to get by on just our Social Security. Few will survive just on an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. But when added together, all these contribute to becoming “self-pay” through the end of life.

A reverse mortgage is not a fit for everyone – no one financial product is.

But a reverse mortgage is going to play an important role in many homeowners’ financial health in retirement, particularly when used as part of a sound, long-term retirement plan.

Or…you can just strike oil.

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