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Published January 31, 2014, 12:06 PM

The family bank: Older Americans put finances at risk when subsidizing relatives, expert says

FARGO – Shelda Warren was prepared for retirement. Perhaps her career as a mathematics professor at Minnesota State University Moorhead gave her an edge when it came to finance, but she did not do it alone.

By: Angie Wieck, INFORUM

FARGO – Shelda Warren was prepared for retirement. Perhaps her career as a mathematics professor at Minnesota State University Moorhead gave her an edge when it came to finance, but she did not do it alone.

“My personal feelings are that everybody should have a financial planner,” Warren said. “Do you have a mechanic? Do you have a doctor? You don’t do that stuff yourself, do you?”

Eighty-six-year-old Warren accumulated a comfortable nest egg before retiring in 1994. She also purchased long-term care insurance years ago in the event she needed nursing home care. Her daughter knows what she needs to know about her finances, and her daughter knows Warren hopes to be around long enough to spend it all.

Warren is not like many older Americans recently polled in “Family and Retirement: The Elephant in the Room,” a study conducted by Merrill Lynch Global Wealth Management and Age Wave.

The study reported that many retirees don’t have enough savings to cover the unforeseen expenses of today. It also revealed that few retirees share information about their financial situation with family members, often increasing the anxiety level of everyone involved.

The ‘family bank?’

Few retirees budget for personal loans or gifts to family members in their retirement plan, yet six out of 10 participants age 50 and older said they had loaned an average of nearly $15,000 to family members over the past five years.

They filled the role of “family bank,” at times putting their own financial stability at risk in order to provide for family members.

Susan Johnson-Drenth, a Fargo estate planning attorney with an elder care specialty, said the recent mortgage crisis has had a big effect on estate plans.

“It’s so common that I see older individuals in their 70s and 80s that are subsidizing their children because they have gone through foreclosure and cannot qualify for a home loan,” Johnson-Drenth said.

In addition to supporting adult children, many retirees supplement the finances of their own parents.

Matthew De Vries, a certified financial planner with Edward Jones in West Fargo, said many of his clients are concerned that their parents do not carry long-term care insurance, but few actually set aside money for their support.

People often have the tendency to be generous to family members, sometimes to a fault. Before support is given, the family needs to have a heart-to-heart about the potential financial risks, Johnson-Drenth said.

“Individuals who are trying to save their own nest eggs and still have children or grandchildren in college and have their own parents with health concerns or long-term care needs, that parent needs to step back and remember they may have 40 years to come,” she said.

A ‘burden on family’

The Merrill Lynch study also revealed how unprepared many retirees are when it comes to their own long-term care needs.

While older participants cited “being a burden on family” and “running out of money” as their top concerns for retirement, 66 percent admitted they have not taken steps such as purchasing long-term care insurance in order to avoid either scenario.

The reality is that long-term care insurance is expensive.

Gloria Boland of Moorhead looked into it after her husband had a stroke several years ago, but she realized she could not afford it at her age.

“I think it’s something people need to think about when they’re 20,” she said. “When you’re 50 or 60 years old, the premiums are too high unless you have a fantastic income. I didn’t have a fantastic income.”

‘Elephant in the room’

More than half of the study’s participants age 50 and older said they have not discussed their retirement plans with their adult children, and 28 percent said they have not even had a discussion with their spouse.

Financial planners advise clients to share basic information about estate plans and health care preferences with their family, and many firms offer multi-generational planning to facilitate the conversation.

Most respondents said they have not had the conversation in order to avoid conflict, but many financial planners say being honest about finances and expectations provides everyone with better peace of mind.

De Vries added that people should not wait until the death of a spouse or until an undesirable financial situation arises before talking to family members about what they plan.

No matter how retirees plan to save or spend, it should always be a matter of pre-planning rather than reactionary planning, he said.

Readers can reach Forum reporter Angie Wieck at (701) 241-5501