From the July 2008 issue of Research Magazine • Subscribe!

Time to Start Talking

With the economy sputtering, more and more financial advisors are going to see their boomer clients squeezed between the dual financial demands of boomerang kids and aging dependent parents.

While the current economic climate has put a spotlight on the issue, it's got huge staying power -- and may well reshape the financial planning engagement.

As Lisa Kirchenbauer, president of Kirchenbauer Financial Management & Consulting in Arlington, Va., puts it: "Long-term, this is going to continue to be a big issue. Short-term, we're going to get our first taste of it in real time. Kids may not be able to get jobs right out of school and Mom and Dad may be squeezed because the market is not doing as well -- and the boomer client is right in the middle of it."

Which leads Kirchenbauer, a certified financial planner, to ask this key question: Does the situation require a rethinking of how financial planning is structured?

Not surprisingly, demographics is driving the trend.---

A survey of 1,500 adult children of aging parents by Home Instead Senior Care revealed a number of obstacles that undercut the quality of life for both generations.

Based on the research, the international caregiving firm recommends following "The 40-70 Rule," -- meaning that if you are 40 and your parents are 70, it's time to start talking about certain senior topics, including financial planning and financial independence.

Among the findings:o Boomers communicate frequently with their senior parents by phone and in person: 35 percent communicate daily and 26 percent every couple of days.o Many boomers would like to know more about their parents' personal situation so that they can help them, if necessary.o Nearly one-third of boomers say the continuation of the parent/child role is the biggest obstacle to communicating with their parents about difficult topics.o Nearly one-quarter say they wish they were more prepared to talk with their parents about these older adults' plans for the future.o Boomers whose parents live with them are the least comfortable of all adult children when it comes to discussing issues with their parents such as finances, health, Medicare/Medicaid benefits and driving.

For more information, visit www.4070talk.com.

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With many boomers having delayed childbirth, there's now an overlap in the period when a child becomes independent and when the care of an aging parent becomes important. Add to that the return to the household of an adult child and it makes for a changed household and financial profile.

It's so changed, in fact, that a new "life stage" is emerging, according to Larry Cohen, director of Consumer Financial Decisions Group, which is affiliated with SRI Consulting Business Intelligence.

"It's still in a transition phase, but there's going to be an increasing overlap," he says. "Boomers are stuck in the middle and it's going to get worse for subsequent generations. This is definitely something financial planners need to be sensitive to."

Already, Cohen's research shows, over 10 million U.S. households have boomerang children -- technically defined as children whom their parents cannot claim as dependents for tax purposes. And that figure doesn't include boomers who routinely pay bills for children who live outside the home.

"This is just the tip of the iceberg," Cohen says. "I have no idea how big the iceberg is."

Consumer Financial Decisions Group research also suggests that financial decision-makers in households with boomerang children are moving away from delegation or self-reliance and want more of a collaborative relationship with their financial advisor.

Also in play: no less than the iconic nest egg.

As Kirchenbauer notes: "What's the money for? We're at the point where everyone needs to rethink what is the money really about. It goes to life planning issues: what's most important in our lives and let's get the money supporting that as opposed to following traditional ideas. It behooves us as advisors to get these conversations started -- because it's coming. We're no longer moving in lockstep to the old American dream."

Survival StrategiesUp until a few years ago, advisor Roseanne Grande never routinely asked new clients whether they had, or expect to have, a financially dependent parent. Today, it's a critical part of Grande's financial planning process.

"It's one of the first questions we ask: Do you have living parents? That's the conversation opener," says Grande, managing director of R.W. Rog? & Co. in Bohemia, N.Y. "Basically, I look to see if anybody is dependent on the client's assets. Are the parents financially able to maintain themselves? Some people have children who've come back, or who have emotional or physical problems. You have to see where it all takes you."

Grande, whose firm has $240 million in assets under management, estimates that one-quarter of her clients are dealing with family dynamics -- a boomerang child, an aging parent or both -- that could impact their finances.

"I'm noticing it with prospects that come in, too. It's going to be a really sticky situation," says Grande, who cared for her own mother at home for 10 years. "A lot of our clients are close to retirement or in retirement and their parents have run out of money. So they have themselves to take care of and now they are trying to help their parents financially. There are also a lot of cases with boomerang kids with grandkids. It's a totally extended family and you're in the middle trying to take care of everybody. The whole dynamic of that is pretty crazy."

For clients in that situation, Grande has suggested they pare back on expenses and perhaps consider moving to a lower-cost state. For clients who are still working, she urges them to overfund their retirement.

"We run our life expectancy to 100 and we are probably going to start running it to 115, believe it or not," she says. "With medical advances, you can basically be rebuilt. I'm a boomer too and as we age, there are going to be so many of us draining Medicare, health care. One of the things to our advantage is we are young enough today to make changes in these areas now."

If clients have maxxed out their employee retirement contribution, Grande recommends that they start saving in non-qualified accounts so that if they do have to tap them, they won't take a tax hit.

If a client has an elderly parent, Grande tries to find out whether he or she has any special needs. In that event, Grande relies on partnerships she has developed with eldercare attorneys, geriatric care managers and, most recently, with a woman who processes Medicaid applications.

"A lot of advisors are dealing with this now but it's going to become a larger part of their practice," Grande says. "Planners are really going to have to take a serious look at this."

Cohen agrees.

"This conversation may not be taking place in the financial planner's office, but it really should. You're supposed to think about the household, not just the individual. You're supposed to think about the complete situation," he says. "It's also a perfect way for financial planners to be able to broaden their reach, increase their fee-generating income and cement a relationship that has a greater chance of surviving a fatal event. By expanding into other relationships and responsibilities, there's great potential for creating ongoing relationships for [multiple] generations." Conversation StartersOne of the toughest challenges involves getting aging parents to open up to their boomer children about their finances and other sensitive subjects.

The issue has gained such traction that Home Instead Senior Care, an international in-home care provider, recently launched a public education campaign called the 40-70 Rule. The concept: If you are 40 and your parents are 70, it's time to start the conversation.

An academic researcher who has studied attitudes about aging, University of Arizona communications professor Jake Harwood has worked with the 40-70 campaign on communication tips.

His best advice: Talk sooner, rather than later, when a crisis has occurred. Forget the baby talk -- don't patronize. It will only put the older adult on the defensive and convey a lack of respect. Maximize independence. Always try to move toward solutions that provide the most independence for the aging parent.

"The big problem is not starting the discussion," he says. "You've just got to say it, even if it's a difficult topic to talk about and money is a difficult one -- others like transitioning out of a private residence to a nursing home, even more so. You just have to bite the bullet."

Harwood says it can be helpful to frame the discussion in terms of grandchildren. "That's a topic grandparents will respond to positively and the middle generation may be more comfortable talking to their parents about planning for their grandchildren's college education." The opener: Mom and Dad, are you interested in participating in those discussions? "Then you can raise other issues as part of a broader discussion," he notes.

Kirchenbauer, who has $52 million in assets under management, says advisors are increasingly becoming involved in the process.

"We would be less than completely responsible if we don't ask about the parents and sometimes it's a quick conversation. How old are they? How are they doing financially? But many times you get this answer: 'I'm not really sure, but they seem OK.' That's not a good enough answer. That's a landmine," she says. "We've got to be there to be the patient coach to help clients have that very tough conversation. They are still the kid in most parents' minds. You have to spend time coaching them on how to bring it up in the right way that doesn't sound like they are poking their nose into something they shouldn't."

Kirchenbauer says hers is a two-part process. First, she wants clients to understand that the information they're seeking from parents could be critical to their own financial independence. Next, she helps the client figure out how to bring up a conversation about assets, estate planning and income in a low-key way.

She even invites clients to use her as a scapegoat.

Under one scenario, a client might say: We've been working on our financial planning and our retirement and my financial advisor was just asking me how you're doing. Have you updated your documents recently? Do you have a will? Does it reflect your wishes?

"The ones where there's been absolutely no conversation about money, or when it's a real controlling situation, those can be hard," Kirchenbauer says. "For the parents, they can feel a little defensive: Why is my child asking me about my money? You get a little pushback. For others, it opens up a wonderful dialogue on key things like estate planning, how well their portfolio is diversified, long-term care. When we're lucky, we've had a number of clients who have had good positive conversations. But, honestly, it doesn't always work out that way."

At the moment, Kirchenbauer is working with two couples with kids who are about to take on aging parents as well. "I'm trying to get ahead of it early," she says. She is also working with a boomer client's mother -- trying to preserve her funds so that she doesn't become financially dependent upon her daughter down the road. "There are all kinds of emotional issues with this one," she adds. "But I have to be able to navigate them because of the financial issues."

Kirchenbauer herself is a case in point.

She is 45 and her husband, nine years older, is a high school band director who will retire next year at 55. The couple has a 12-year-old and twins who are six. Kirchenbauer's mother, 65, is a recent retiree.

When Kirchenbauer retires, her mother will be approaching 80 as will a sister-in-law she anticipates helping to support.

"I'm thinking this traditional retirement idea is not even going to work for me. We need to be thinking now about what we're going to do differently in the next 15 to 20 years. We're living it, but we're still navigating through it," she says. "I don't have the answers yet."

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Freelance writer Ellen Uzelac is based in Chestertown, Md.; the former West Coast bureau chief and national correspondent for The Baltimore Sun, can be reached at ellenuzelac@msn.com.

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